Wednesday, November 11, 2009

Arnold Kling is On Fire

The past few months the blogosphere has been quietly dominated by one blogger, Mr. Kling. He built up his insider credibility with technical posts on the insidiousness of derivatives and the futility of macro textbooks. Recently he has delved into the affairs of the common person. Here are three of his main themes from the past few months if you haven't been reading:

1) The elite is out of control. The Fed's actions of late can only be explained if "you think of their goal as transferring wealth from taxpayers to banks." The elite might kill entrepreneurship by making it an exercise in getting the gov's money, as he explains here. On elitism in general, he says that "I believe that I belong to an elite class of individuals who is capable of handling very difficult academic subjects. I would not go farther than that. In particular, I would not say that this class of individuals ought to have lots of political power. On the contrary, I see mostly harm in the way that educated elites have exercised power, from The Best and the Brightest in Vietnam through the current economic crisis." That line about academic success really resonates with me because my own middling success is basically the only tangible thing I have to offer the world thus far. Overall, he favors ruling by "an elite with humility."

2) The US will soon face a crisis to pay its debts. Here he says that "we have merely pivoted from a banking crisis to a government debt crisis." Although other countries may go into debt too, that will not save us. Here, he defines a large unanticipated inflation as equivalent to a default. Borrowing off of the example of California, he says here that "at some point, borrowing in the market becomes prohibitively costly," and that the gov may have to take steps that would today be considered political suicide. Here is his imaginary conversation with the financial markets, where he notes his worry that although he has bets against inflation, it is difficult to hedge against the political risk that would come following a debt crisis. Finally, here are the various scenarios that could play out for resolving US indebtedness, with the probability weightings he assigns for each.

3) Status seeking is pervasive. Robin Hanson talks about this now and then on OB and when he does he means business, but Kling discusses it all the time now. It has invaded his thought processes like a misfolded prion protein. He sees college as merely ultimate status good for the parents of graduating high school seniors, who want to associate with other high status parents. He considers the current healthcare bill as the opportunity for Dems to offend as few people as possible and eat all the desert they can, thus raising their status. Once they've lost their majority they will invite the Repubs in to make tough decisions and take credit for the spinach. Here he speculates that changing people's minds is so hard because it requires them to acknowledge a loss of status. Most people do not take pleasure in realizing their own errors as they should from a truth seeking perspective.

When you read a blogger for months and years every day, he/she changes the way you think. For better or worse, in Arnold I trust.