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The WSJ op-ed reflects my ingrained First Amendment-absolutism: fake news will always be with us and any remedy is likely to make things worse.

(Yes, I did recently suggest corralling infopolists’ assaults on privacy. But, our Constitution protects the exercise of free speech not of market power — even if the power was “fairly” secured. Moreover, as Emerson said, a foolish consistency is the hobgoblin of little minds.)

Skepticism Beats Snopes as an Antidote to Fake News

These days what’s called ‘fact checking’ is no more than a comprehensive gotcha effort

Sophisticated netizens swear by the myth-busting of Snopes, a website that has debunked many an urban legend. But Snopes—or any other enterprise established only to check facts—can’t stop the epidemic of fake news allegedly pervading social and traditional media.

When customer reviews of sellers first appeared on eBay , scholars quickly lauded—and backed with rigorous, fact-based research—the benefits of independent evaluation. But it didn’t take long for scammers to produce fake reviews. Sellers learned to p

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I am viscerally skeptical about expanding state power but recognize that technological advances do often require new rules: Automobiles required brake inspections and traffic police for instance.

Similarly, I argue in this just published Project Syndicate oped,  the digital economy poses new risks and requires new rules. The info-monopolists are not your great grandfather’s oil trusts. Market power can deprive us of more than the loss of the “little triangles” of consumer surplus as I think Zvi Griliches used to put it.

 

Opening of the new Google data center in Eemshaven

The question of how to encourage innovation while limiting the abuse of market power long precedes the advent of the digital age. And today, the need to strike the right balance is nowhere more apparent than in the case of dominant information-technology companies like Facebook and Google.
In a modern capitalist economy, we celebrate innovations that produce market power, but fear the risks of unchecked dominance. Nowhere are those risks more apparent than with today’s information-technology monopolies. (more…)

This article in many ways, is the “debt” counterpart to my 1993 Journal of Financial Economics piece and offers an even broader critique of the reflexive belief that more complete financial markets are always better.

I conclude thus:

Lemon problems do not stop the sale of well over a million used cars in the U.S. each year, but they do prevent the operation of a market in which buyers place sight-unseen bids for used cars offered by unknown sellers. In fact, anonymous markets for physical goods are restricted mainly to metals or agricultural commodities. Most goods—including new or secondhand cars, shoes and homes—are purchased from identifiable sellers.
Buyers also prefer to examine specific items—test-driving cars or trying on shoes, for instance—before they make a purchase.

Outside finance, revolutionary technological advances have not turned many goods or services into anonymously traded commodities. Rather, the advances have reduced the cost of communicating and using detailed information, mitigating information asymmetries, and helping buyers select items that match their preferences. And technology has reduced anonymity: in contrast to the street-hailing of taxis, users of ride-hailing apps can screen drivers based on their ratings. Similarly, consumers can review the ratings of plumbers on the web instead of randomly picking one from the telephone directory.

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(Manifesto-like) Syllabus

This seminar examines the development of knowledge embodied in artifacts (including physical objects, protocols, and organizations) intended to transform “existing conditions into preferred ones.”We are particularly interested in knowledge “inclusively” produced by the many and for the many. Thus, we care more about how ready-to-wear footwear is designed, produced, and sold, than in customizing handcrafted boots for buyers who don’t think about the price. Likewise, general tools and techniques commonly used to produce a variety of artifacts are of greater interest than specialized tools. Thus, we are interested in how consumer goods, not just shoes, are designed, produced, and marketed.

By traditional intellectual standards, studying practical knowledge may seem undignified and uninspiring. The ancient Greeks venerated contemplation, music and the other arts, abstract truths, and mathematical reasoning. Merchants and craftsmen (including, presumably, builders of large hollow horses) occupied the bottom rung of Plato’s idealized society; their knowledge and toil was but a means towards the realization of the good life by a small enlightened class. Modern society has raised science into the pantheon of the wisdom we venerate. Engineers, physicians, lawyers, entrepreneurs, managers, and accountants earn high incomes; but, many dismiss their knowledge as a mere application of deeper scientific ideas or simply unfounded superstition. Similarly, in higher education: the first European universities started by offering practical medical and legal training and the University of Pennsylvania emerged from Benjamin Franklin’s 1749 proposal for an Academy to teach “those Things that are likely to be most useful.” But now, some in the upper reaches of the Academy deride professional education as verging on the teaching of trades that must be kept in its subordinate place.

 

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Fair-lending laws turned consumers into anonymous credit scores—and a target for identity thieves.

In a longer working paper I further argue that reducing individuals to scores has also undergirded the vast growth of anonymous markets in securitized consumer and mortgage loans.

Photo: David Goldman/Associated Press

My working paper just posted on SSRN synthesizes ideas Ive been working on for my practical knowledge seminar, a case writing project on medical innovation and a forthcoming paper in the Journal of Applied Corporate Finance.

I argue that economics lacks an “engineering” counterpart to its “physics” side. That’s fine as long as you don’t rely just on the “science” of economics to make practical choices. But wouldn’t we be better off with an engineering side? (I grant social engineering is a scary phrase!)

Abstract:
Keynes thought it would be “splendid” if economists became more like dentists. They have instead become more like physical scientists who focus on propositions about invariant tendencies amenable to decisive verification. This predisposition, I argue, limits the utility of economics in evaluating concrete policy choices. I further suggest that emulating the more pluralistic and less decisive techniques used to develop and test new engineering and medical technologies would mitigate these limitations. Additionally, I offer an example of how a simulation model can help evaluate policies that affect the extension of credit.

My article, just accepted by Ekonomisk Debatt, will be published after translation by the Swedish Economics Association in May.

The argument is half-Hayekian in the sense it argues for an important role for the decentralized, private sector creation of the medium of exchange, which Hayek presumably would have approved of, but anchored in a government monopoly for creating base money that Hayek did not favor, but which dates back to antiquity.

Abstract:

The decentralized enterprise that sustains the dynamism of economies makes top-down monetary interventions, such as quantitative easing, that target aggregates such as overall inflation, futile. Moreover, economic stability and dynamism also require prudent, decentralized lending to decentralized borrowers. But, sustained monetary interventions aimed at aggregate inflation (or employment) targets induce imprudent credit extension, jeopardizing stability and dynamism.

 

https://ssrn.com/abstract=2924514

Amar Bhidé

Financial Times  August 16, 2016

Easy money is a dangerous cure for a debt hangover

Paul Volcker’s critique of 2% inflation targets in his recent memoir spurred me to write this oped just published in the Wall Street Journal. Volcker focuses on the economic hazards of the targets; I question the legitimacy of “independent” appointees in making inherently political choices about ends and not just means. The Constitution envisions a republic messily governed “by the people” not just “for the people” by philosopher-kings in an efficient Kallipolis.

 

 

 

 

 

 

 

 

 

 

 

My argument (which Volcker may well dispute) echoes the problem raised in Dick Nelson’s 1977 classic, The Moon and the Ghetto, of carelessly throwing policy goals “over the legislative wall” to experts. I plan to expand on this in a book based on my practical knowledge seminar (This become a consuming obsession for me, so Id love to get any thoughts on the seminar’s manifesto-like syllabus).

But here I’d like to add my two bits to the flood of eloquent, well-deserved tributes occasioned by the Volcker memoir.

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