Pater Familias

NOT FINDING THE NOTE—UPDATE. I posted here about my speculation that the haste to fashion toxic assets out of slices of mortgages had created backoffice problems, so that it could be hard for a lender to come up with the paperwork relating to a mortgage. This article describes a decision by a federal bankruptcy court in the Southern District of New York which expunged a mortgage debt of $461,263 because the paperwork was insufficient. (The case is continuing so there is no final decision, and there are title issues remaining.) The lawyer for the bank said at the hearing: “In the secondary market, there are many cases where assignment of mortgages, assignment of notes, don’t happen at the time they should. It was standard operating procedure for many years.” In other words, the paperwork wasn’t being done.

WHY I AM A KEYNESIAN. John Maynard Keynes himself gave the explanation for why I look at the world through Keynesian spectacles. In THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY, he wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” I am not a madman and I do not have a position of authority. However, I was taught Keynesian economics in the 1960’s. Kids, take note of the beliefs you are forming today because some of them will stay with you forever.

HOW JUDGE POSNER BECAME A KEYNESIAN. Judge Richard Posner is an intellectual giant for many reasons, including his work in a field he helped to create—the economic analysis of law. He has been considered an important figure in the Chicago School of Economics. Thus, his article “How I became a Keynesian” is noteworthy—a member of the Chicago School announcing that he is now a Keynesian. Judge Posner says that he read Keynes’s THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY for the first time in September and concluded that it is “the best guide we have to the crisis.” Posner says: “The dominant conception of economics today, and one that has guided my own academic work in the economics of law, is that economics is the study of rational choice. People are assumed to make rational decisions … by employing a form (usually truncated and informal) of cost-benefit analysis.” (This is the approach that Professor Krugman was referring to here when he asserted that “the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach.”) Kids, Judge Posner’s exposition of the argument of a difficult book is very helpful. One thing he stresses is the role of uncertainty in the investment decisions of businessmen, how they lack “’strong roots of conviction’” even in the best of times. Put another way, rational decision makers have to confront the radical uncertainty of a world where there are Black Swans.

WRITING DOWN THE JOKES. Kids, you may have noticed that I tried not to pass on my study habits to you. They were not suitable for copying. For one thing, I wrote down everything that was said in a lecture, including the jokes. I remember how astonished my friend Mahlon Straszheim was when he saw that I wrote down the jokes. I believed that a joke might trigger a memory of the substance of the lecture, just as a song can trigger a memory. I don’t know that it ever did, but I do remember some of the jokes.

ANGRY ECONOMISTS BACK IN THE DAY. The conflict between the Chicago School and economics departments in the East goes back a long way. Over 40 years ago,one of my economics professors at Harvard described his feelings about the economists in the Chicago School. The professor compared his feelings to those of a defendant testifying in a trial after a brawl: “Your honor, he punched me, he kicked me, he knocked me down…. [PAUSE] I have never been so tired of a man.”

ANGRY ECONOMISTS. Kids, I usually find that reasoned argument helps me understand issues, so I want to call your attention to the fierce debate that is taking place about Keynesianism. This article by Paul Krugman gives a good introduction to the debate. Professor Krugman labels the debate as between “Freshwater Economists” and “Saltwater Economists”, but I think that the rival camps are more often known as the “Chicago School” (the “Freshwater Economists”) and everybody else (the “Saltwater Economists”). Think of the Chicago School as the leaders in the attacks on Keynesianism. In practical terms, you can associate Keynesianism with advocating fiscal stimulus policies in times of recession. To give you a flavor of the rhetoric on each side, Professor Krugman quotes prominent members of the Chicago School as calling the current stimulus plans “schlock economics” and saying that the plans are based on “fairy tales.” Professor Krugman quotes himself as saying that comments from Chicago School economists are “the product of a Dark Age of macroeconomics” and quotes Professor Brad DeLong as writing of the “intellectual collapse” of the Chicago School. Professor DeLong collects more harsh language from each side in this post.