This section is a compilation of opeds, bigger blog posts, talks, and a few articles, aimed at an audience that doesn't want an equation every three lines. Academic talks and comments are on the research page. My blog contains more topical commentary. This is organized (roughly) by subject and then reverse chronoligical order. The sections:
European debt crisis
Current economic situation and policy
Financial crisis, Financial rgulation
Monetary policy; inflation, deficits, fiscal theory
Fiscal policy, fiscal stimulus
General economics, philoisophical debates
Interviews and other media
- "Austerity or Stimulus: What we need is Growth" March 21 2012 IGM/Bloomberg Business Class series. Austerity of high taxes is hurting Europe. Lack of spending isn't their problem. Get rid of the distortions, now, is the only answer. Local pdf
- A continent of bad ideas Bloomberg.com Business Class December 22 2011 local pdf. Latest on the euro. "... by artful application of bad ideas, Europe has taken a plain-vanilla sovereign restructuring and turned it into a banking crisis, a currency crisis, a fiscal crisis, and now a political crisis.." Italian version, thanks to Duccio Gasparri
- Last Chance to Save the Euro Wall Street Journal September 29 2011 (WSJ link, requires subscription. ) The ECB is buying PIGS sovereign debt, and lending massively to banks who are buying sovereign debt, taking same debt as collateral. Current proposals essentially expand this bond buying a lot, but with smoke and mirrors so you don't see it. When defaults come, Germany will either have to pour euros into the ECB, validating the fait-accompli bailout, or watch the euro inflate. Everyone thinks that the euro can't survive sovereign default. No, allowing sovereign default is the way to preserve the euro.
- Europe's Greek Stress Test June 17 2011.Wall Street Journal, with Anil Kashyap. Local pdf. Why is Europe so scared to let Greece reschedule just a bit? Answer: because their banks holding Greek debt. Greece isn't being bailed out -- they'd rather defaut than work a year and a half just to pay off old debts. Bondholders are being bailed out, and those are mostly banks. So much for the wonders of bank regulation. Europe needs to fix its banks pronto, because the sovereigns will default. The default doesn't have to imply a financial crisis.
- Contagion and other Euro Myths Wall Street Journal Dec 2 2010 local pdf The latest on the unfolding sovreign debt crisis. Contagion is nonsense, and short term debt is a big part of the problem.
- Greek Myths. May 18 2010 Wall Street Journal Local pdf file Let Greece default to save the Euro. A good currency is a monetary union without fiscal union.
- Save the Euro, let Greece go. A video from the IGM Myron Scholes forum on "The Euro In Crisis." March 19 2010 More video from the April 28 Management Conference
- CBO and the fiscal cliff Sept 4 2012 Bloomberg.com "Business class" OpEd. local copy ; blog post. A review of the CBO's forecast that the "fiscal cliff" will cause a recession. It's Keynesian, ignoring all incentive effects, and thus right but for the wrong reasons. Policy models should be much more transparent quantiative parables, showing the logic of their foreasts and not pretent to be authoritative black boxes.
- All the world's troubles in 10 minutes Update Sept 2012. In Government Policies and the delayed Economic Recovery Lee E. Ohanian, John B. Taylor and Ian J. Wright, eds., Stanford: Hoover Institution Press (Sept 2 2012), p. 193-199. (Whole book here ; Manuscript of my comments here. ) Written version of my remarks at the Hoover Conference, "Restoring Robust Growth in America," Dec 2 2011. Europe's crisis and how the economy is a garden, needing weeding not the latest fertilizer.
- What Political Compromises Could Create Jobs? November 9 2011 Planet Money Blog Post. Nothing coming out of Washington has a hope of "creating jobs" in the next year.
- Bubble trouble Bloomberg View Septeber 22 2011. local pdf. Part of Booth's "Business Class" series. High price-dividend ratios mean low returns and vice versa. The "bubble" argument is only about understanding why risk premia vary over time. A short oped based on "Discount Rates"
- Hedge Funds. Update, Feb 19 2012 Slides for talks about hedge funds. Returns, alphas and betas, performance, fees, how to form portfolios of hedge funds.
- Discount rates Joural of Finance 66, 1047-1108 (August 2011).
The video (including gracious roast by Raghu Rajan). The slides. Data and programs (zip file).
My American Finance Association Presidential Address. Discount rate variation (equivalently expected returns, risk premiums) are now at the center of asset pricing questions, from bubbles to the nature of the crash. I survey theory and empirical work, and offer some hope that "macro" theories are relevant to big recent events. It's an article, and extends some of the other themes here.
- Introduction for Darrell Duffie January 2010 Introduction for Darrell’s AFA presidential speech.
- Introduction for Gene Fama October 10 2008. Gene gave a talk on the history of the efficient markets hypothesis for the American Finance Association history project. This is my introduction. I try in 6 minutes flat to say why the efficient markets hypothesis is important and a great intellectual achievement. Video of Gene's speech from the IGM website.
- Efficient Markets Today Talk given at the Conference on Chicago Economics Nov 10 2007. A second “discount rate” revolution has followed the first efficient-markets revolution, and dramatically changes how we think about financial markets. Alpha and beta are dead.
- Portfolio Formation in the new Financial World October 6,8 2009 Slides for a talk on new ideas in portfolio theory.
- Is now the time to buy stocks? WSJ op-ed . Nov 12 2008. The average investor must hold the market portfolio of stocks and bonds. How can that possibly make sense in the current environment, especially with volatility at 50% per year? I show you how. Who should be buying more, and who should be selling more? Here is the slightly longer and more detailed manuscript , along with a short summary of research -- yes, this really is the summary of 30 years of finance research, not something I made up as I wrote it -- and answers to some common questions. Here I am on CNBC explaining it all in 20 seconds or less.
- Cost of Capital. Slides for a talk on cost of capital given at NABE conference, Sept 25 2005. The old advice to use the CAPM and 6% for cost of capital doesn’t make any sense now that we know expected returns vary over time.
- Asset Pricing and the Equity Premium Slides for the Smith-O’Brian Lecture, Notre Dame University, October 8 2004. (An update of several related talks)
- Running on empty (pdf) (link to WSJ (html)) March 2 2013 Review of "The Banker's new Clothes" by Anat Admati and Martin Hellwig. Banks should issue a heck of a lot more equity, a heck of a lot less debt, and a heck of a lot less nonsense.
- The Fed's Mission Impossible Wall Street Journal December 29 2011 (Local pdf) A review of the Fed's proposal (the press release) to regulate big banks -- and, soon, everyone else.
- The More Capital, The Safer the Bank
July 15 2011 Wall Street Journal.
Local pdf. This piece counters many arguments for low bank capital requirements. Capital is not reserves, the required return on equity is lower for better capitalized banks. (Modigliani and Miller work at least a bit.) And no, Dodd-Frank does not mean banks are forever more free of risk.
For more on bank capital requirements, see Anat Admati's Stanford website. Here's the source for quoting Dan Tarullo on more capital. The other side that I was making fun of: JP Morgan testimony and The Clearing House Open Letter. Here is the New York Times mixing up capital with reserves and stating as a fact -- not a quote, not a theory, not an opinion, just a undeniable fact -- that higher capital requirements mean less lending.
- Panel on the financial crisis (Video) January 2011 with Simon Johnson, Raghu Rajan, Rene Stulz, at the AFA meetings
- A Skeptical Appraisal of Frictions in the Financial Crisis September 2010. Notes and Pictures. This is a 2 hour lecture for Ph.D. students at the Deutsche Bank Symposium hosted by the Booth School September 2010. It offers a skeptical view of the emerging consensus that the financial crisis is all about "bubbles" "liquidity spirals" "fire sales" "capital constraints" at commercial banks and so on. I do think there was a run on repo and short term financing. Good old fashioned macro asset pricing works a lot better than you might have thought. Some themes are picked up in Discount Rates.
- Lessons from the financial crisis Jan 2010 (was “Financial crisis and policy”) Regulation 32(4), 34-37. The financial crisis is mainly about too big to fail expectations. The only way out is to limit the government’s authority to bail out. Article based on a talk given at Cato, Nov 6, NY.
- Resolution authority Update, October 22 2009 This is a very short article on the “systemic resolution authority.” It’s based on testimony I gave to the House Financial Services committee. No surprise, I’m not a big fan of unlimited power and budgets and no rules.
- Lehman and the Financial Crisis September 15 2009 Wall Street Journal oped with Luigi Zingales. Letting Lehman fail was not the central cause of the financial crisis.
- CSPAN video of the latest University of Chicago Panel on the Financial Crisis. (April 20 2009)
- Financial lessons of the great depression. March 30 2009. A panel discussion at the Council on Foreign Relations.
- Asset pricing after the crash. March 20 2009. This is a piece based on a panel discussion titled “Rethinking asset pricing” at the Spring 2009 NBER Asset Pricing meeting. It includes skeptical views on just how important credit constraints and liquidity really are. Liquidity is the frosting on the cake of finance. There is a lot of frosting these days, but still some cake.
- The Monster Returns Oct 2 2008 My view of the credit crunch and why the Treasury asset-purchase plan won't work. I think the focus on troubled banks misses the strength of the banking system, and the catastrophic problems in credit markets. It also appeared on the Freakonomics blog.
- Earlier Comments on the credit situation. Sept 25 2007 given at the GSB Global Financial Markets Forum. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes
- Visit the IGM webpage for links to lots of alternatives proposed by GSB faculty and related thoughts on how to get out of this mess. The 12 days of bailout video
- Comments on the credit situation given at the GSB Global Financial Markets Forum, Sept 25 2007. Some good aspects of the current situation, some unheralded aspects of the Fed’s policy, some things that went wrong, and the downside of some quick fixes. Video of the event.
- The interest rate paradox. April 9 2013 Slides for a talk at Grant's spring conference. I haven't written up the talk yet, but if you were there and want the pictures here they are.
- Treasury needs a better long game March 4 2013 Wall Street Journal. Local pdf. (Better:) Blog post with a few cuts restored and some notes. If the Fed wants to raise rates to 5%, it will raise the deficit by $900 billion. Will Congress let it do that? Fiscal policy limits monetary policy in a time of large debt. A much longer maturity structure would help.
- Having your cake and eating it too: The maturity structure of US debt November 15 2012 How the US Treasury can both lengthen and shorten its debt at the same time, to buy insurance against interest rate rises and provide "liquidity." A short paper diguised as comments on Greenwood, Hanson, and Stein “A Comparative Advantage Approach to Government Debt Maturity” at the Second Annual Roundtable on Treasury Markets and Debt Management , US Treasury, Nov. 15 2012
- The future of central banks. Sept 1 2012 Wall Street Journal Op-Ed. local pdf ; blog post
- Myths and Facts about the Gold Standard July 28 2012 Wall Street Journal WSJ link, local pdf, blog post a with a few cuts restored (recommended)
- Inflation and Debt National Affairs 9 (Fall 2011). html An essay summarizing the threat of inflation from large debt and deficits. The danger is best described as a "run on the dollar." Future deficits can lead to inflation today, which the Fed cannot control. I also talk about the conventional Keynesian (Fed) and monetarist views of inflation, and why they are not equipped to deal with the threat of deficits. This essay complements the academic (equations) "Understanding Policy" article (see below) and the short Why the 2025 budget matters today WSJ oped (see below)
- Understanding fiscal and monetary policy in the great recession: Some unpleasant fiscal arithmetic. January 2011 European Economic Review 55 2-30 ScienceDirect Link
Why there was a big recession; will we face inflation or deflation, can the Fed do anything about it in the face of looming deficits? This is a longer article, expanding on themes below and making some of the arguments precise, with a few equations. Yes, fiscal stimulus is possible..(a teaser)
- Is QE2 a Savior, Inflator or a Dud? June 3 2011. Bloomberg.com (Booth "Business Class" Series).Local copy Why quantiative easing has no direct effect. It slightly shortens the maturity structure of Government debt, which makes us more vulnerable to a run. Most of all, it is a big mistake for the Fed to claim to be in charge of everything when it's really powerless.
- Why the 2025 budget matters today. Wall Street Journal April 27 2011. Long term deficits and short term debt leave us vulnerable to a run on the dollar and stagflation. A simple summary of "Understanding policy in the great recession." Local pdf copy for those without WSJ access.
- Quantitative Easing November 24 2010. The great savior and stimulator, or the beginning of devaluation and inflation? Actually, neither -- both sides keep forgetting that money and short term debt are the same thing when interest rates hit zero. All this does is to shorten the maturity structure of Government debt. However, that's not such a good thing -- it makes us more vulnerable to Greek style crises. Also a short reminder about the Friedman rule.
- Geithner's Global Central Planning Wall Street Journal, October 26 2010. Local copy Literary analysis of Treasury Secretary Tim Geithner's Letter to the G-20. "Global imbalances," "structural policy," "credible medium-term fiscal targets," "strengthen export performance," "support global demand." What does all this mean anyway? Are these all just BS bingo entries to keep staff from falling asleep at global conferences? Sorry, Mr. Geithner, I know it's your job to mouth these platitudes, but there are real issues to be dealth with and someone might take this stuff seriously.
- Inflation or deflation? I’m giving several talks with this title, based on more serious analysis in Understanding fiscal and monetary policy in the great recession. Slides that go with the paper. Here is a video of a short presentation given to the University Alumni Club in New York, October 2010. Fiscal theory in 20 minutes, with a fun introduction by Cliff Asness. Slides for the New York talk. The talk I gave at the NBER EFG Oct 23 2009.
- A Big Stick for the Fed. October 6 2010 This is a draft oped that didn't make it to the Wall Street Journal. Probably with good reason. I'm thinking about the deflation quandary, and that the Fed may be powerless to stop deflation. How can you implement a commodity standard as a backstop in the US? I think about targeting the TIPS spread. Commodity standards are essentially fiscal commitments; that's the big stick the Fed is missing. Targeting the TIPS spread or equivalent CPI-linked securities could provide the backstop to prevent deflation, and allow the Fed to make the fiscal commitments necessary to stop inflation or deflation.
- America Needs an Alternative Maximum Tax April 15 2013 Wall Street Journal.
- Stimulus: Neither Needed nor Free Los Angeles Times November 15 2010. 300 words on "does the economy need more stimulus," with 8 other sages. No.
- Stimulus, RIP. November 9 2010. A last piece on fiscal stimulus, as we all decide whether it was the great savior of the recession, or an ineffective idea ready to go on the ash-heap of bad ideas. Guess what I think. I explain the Barro theorem, how it constrains the debate even if it isn't literally true (how it's false matters a lot), and I respond to Krugman and Delong's latest outrages, in particular the claim that stimulus opponents have no model.
- Are we all Keynesians Now? Link to Economist March 15 2009. The Economist had an online debate on this proposition, headlined by Luigi Zingales and Brad Delong. This was my two cents on the issue. Of course not, right? Some good Keynes quotes and a defense that economics has in fact advanced a bit in 70 years.
- Fiscal Stimulus, Fiscal Inflation or Fiscal Fallacies? Jan 27 2009. An analysis of fiscal stimulus. Dropping money from helicopters is “fiscal stimulus,” and that will surely goose demand before it quickly leads to inflation. Usually though, “stimulus” means by debt that the government plans to pay back, and is supposed to work without inflation. Does it? Many arguments reflect classic fallacies. Most of all, the usual arguments imply that our current troubles come from inadequate borrowing and spending! No, our current troubles come instead from a credit crunch, and a “flight to quality” and “precautionary demand” for government debt. Fiscal stimulus could in principle help to quench that demand, but that problem can be more easily and reversibly solved by expanding the Fed and Treasury’s asset purchases.
Update: Paul Krugman and Brad Delong wrote very critical blog posts. However, neither seems to have read past the first few paragraphs. Brad says I think the velocity of money is constant. Keep reading, Brad, down to “A monetary argument for fiscal stimulus..” where it says “if money demand increases dramatically…”. Paul says I treat S=I as an identity, not an equilibrium condition. Keep reading, Paul, down to “aggregate demand has fallen.. deflationary pressure…” where nominal GDP is adjusting to equilibrate S and I. OK, I can’t condense all of macro down to 300 word blog posts, but if you can’t read more than that, don’t write nasty comments. Greg Mankiw and Dani Rodrik had nicer things to say. Greg’s blog is the place to go for intelligent stimulus skepticism. Declan McCullagh of CBS news wrote a nice article collecting many academic stimulus skeptics.
- After the ACA: Freeing the market for health care Oct 19 2012 An essay on health care, presented at the conference, "The Future of Health Care Reform in the United States," at the University of Chicago Law School. Most of the policy discussion is focused on health insurance. But the health care market is dysfuctional, and needs to be fixed as well. Where are the Southwest Airlines, Walmart and Apple of health care, bringing cost saving, efficiency, and innovation? I argue that we need a big freeing up of health care markets, both supply and demand.
- Forget about the mandate. July 12 2012 Bloobmerg Business Class. The health law debate needs to stop worrying about legalities. The mandate was never the central economic problem. A reminder of all the other problems, and alternatives to the health care law. (local html)
- What to do on the Day after Obamacare April 2 2012 Wall Street Journal Local pdf. Deregulation and competition. Yes, it can work, even in health insurance. Mostly aimed at the widespread and incorrect view that markets can't provide health insurance.
- The Real Trouble With the Birth-Control Mandate Wall Street Journal February 9 2012 Local pdf. Critics complain that religious institutions have to buy health insurance that covers birth control. They're missing the point. Why does health and human services mandate that any and all of us have to buy health insurance that covers regular predictable expenses?
- What to do about Preexisting Conditions oped for the Wall Street Journal August 17 2009. Health Status insurance op-ed for Investors Business Daily (local link ). April 2 2009 These pieces describe my ideas on how free market health insurance can solve the portability problem and thus let us have a competitive system: People who lose their jobs lose health insurance, often with catastrophic results. Two ways to put the basic idea: 1. You can buy “premium increase insurance” so that if you get sick you can afford higher premiums. 2. You can buy the right to buy health insurance in the future, even if you get sick in the meantime.
Note: These opeds summarize “Health-Status Insurance ” written for Cato and “Time consistent health insurance” in the JPE, both in the health insurance and economics section of my research webpage . Articles by Barrons and American Spectator explain the ideas perhaps better than I do.
- In Defense of Hedgehogs July 15 2011 Cato Unbound. Local Pdf. A short essay on forecasting in economics and finance. Why "we can't forecast" doesn't mean "we don't know anything." The difference between unconditional forecasting -- "what will happen?" which we are not very good at, and conditional forecasting or "what will be the effect of x policy" which we are pretty good at. Most of all a defense of "hedgehogs" like Milton Friedman and Ronald Reagan, whose conditional forecasts stuck to a few clear core principle, as opposed to heterodox "foxes." It's a "reaction essay" to Dan Gardner and Philip Tetlock's essay in the July 2011 Cato Unbound.
- Why did Paul Krugman get it so wrong? (ms-word version), September 10 2009. Later published in Economic Affairs 31:36-40 (2011) (local pdf) Portugese Translation. A response to Paul’s New York Times Magazine article. Bloomberg TV Video interview on the post. David Levine wrote a good open letter in a similar spirit. Note: This is just a response to Krugman’s article. A number of people have criticized me for not explaining the alternative, i.e. just what does modern macro and finance have to say about the crisis, exactly what do good models of fiscal stimulus predict, and so forth. Sorry, there’s plenty to say, but that’s a much bigger essay. See the rest of this webpage! Here's the most delicious quote, I think:
"If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.
If you believe the Keynesian argument for stimulus, you don’t care how the money is spent. All this puffery about “infrastructure,” monitoring, wise investment, jobs “created” and so on is pointless. Keynes thought the government should pay people to dig ditches and fill them up.
If you believe in Keynesian stimulus, you don’t even care if the government spending money is stolen. Actually, that would be better. Thieves have notoriously high propensities to consume."
- Milton Friedman Institute
Summer 2008 The proposed Milton Friedman Institute made the news, thanks to a faculty protest letter. The letter is an interesting insight into academia, even here, with its talk of the “neoliberal global order,” “service of globalized capital,” “substitution of monetization for democratization.” I wrote a set of critical comments that got some press and amused my friends.
The protesters created a website , and there is now a new website FriedmanFacts.com debunking them. Gary Becker wrote an insightful blog post. In October 11 2008 I wrote a response to a new petition against MFI.
All this is ancient history. The Institute, now named the Becker-Friedman institute, is up and running supporting all sorts of interesting research.
- Debt and growth video All the world's troubles in 10 minutes. Posted 4/14/2013 but the event was March 2012.
- "Chicago tonight" interview on the fiscal cliff. Jan 2 2013 Video
- EconTalk podcast with Russ Roberts, on "After the ACA" November 19 2012
- Bloomberg TV interview, with Betty Liu November 13 1012 on the fiscal cliff.
- NPR Marketplace also here November 7 2012 10 minute audio on what the election means for economic policy. Related blog post.
- Unraveling the Mysteries of Money. September 2012 An extensive interview by Gideon Magnus of Morningstar, with Harald Uhlig. What is money, fiscal theory of the Price Level, European debt crisis, and more. The Video; a cleaned-up magazine article (pdf) (html)
- Bloomberg TV interview, Betty Liu, "In the loop" show, Sept 5 2012 The ECB's huge "sterilized" bond buying announcement, and the future of the Federal Reserve.
- Bloomberg TV interview, Tom Keene show, August 16 2012
- Bloomberg TV interview, 6/18/2012 on Europe
- Corriere Della Sera interview. 2/22/2012 In Italian.
- September 2011. Apperance on Tom Keene's Bloomberg TV show. Fun.
- Les Echos (French) Story Les cerveaux de Chicago à l'épreuve de la crise and Full interview December 13 2010 Long interview by Pascale-Marie DesChamps on the finanical crisis, efficient markets, etc.
- Mc Neill Lehrer News Hour Feburary 2010 , one year anniversary of the stimulus. Guess what, I didn't think much of stimulus.
- The Globe and Mail interview Jan 2010, Article by Dan Richards, and the Full interview, on economics, policy and markets. Video interview on lessons from the great depression
- New Yorker interview Jan 2010 John Cassidy’s piece in the New Yorker isn’t very flattering about Chicago to say the least. He was decent enough to post the full interviews, which sound a lot more sensible, at least to me. His interview with Gene Fama is here.