…with Arnold Kling. One example:

Few people appreciate what a profound and disturbing puzzle the Depression posed. The non-economist has no trouble getting her mind around the notion of a shortage of jobs. But for an economist, such a shortage is nonsense. If there is an excess supply of, say, construction workers, then the wage of construction workers should adjust downward. As the wage rate sinks, the demand for construction workers rises, and the supply of people willing to work in construction falls. As the competitive process unfolds, bidding down wage rates, eventually supply and demand will balance.

In theory, at any rate, unemployment — an excess supply of labor — should accordingly be self-correcting. But evidently, as the Great Depression showed, the labor market lacks in practice the adjustment mechanisms that are supposed to work in theory.

There are hundreds of theories that try to explain the apparent inflexibility of labor markets. But I have never forgotten a suggestion made by Robert Solow. He pointed out that you never see an unemployed worker walk up to an employer and say, “If you let me have that guy’s job, I’ll work for 10 percent less money.” There are self-imposed ethical limits on competition.

If you think about it, there are probably countless self-imposed ethical precepts that affect our economic behavior. Chances are, without the habits incorporating these ethical precepts, our market system would collapse altogether. Like the water in which a fish swims, our commercial morality is invisible to us. But it is essential.

Professor Postrel has an interesting post on the best way to deal with carbon, assuming that we should:

Let

Here’s a paper with twenty of them. A useful corrective to economic ignorance.

[Via Lynne Kiesling]

If only it worked. Robin Hanson has a brilliant solution to stock market volatility:

Congress could give some well-regarded “best and brightest” regulators a big pile of cash, say $100 billion, and have them correct prices by trading, buying when they think prices should rise and selling when they think prices should fall. If regulators really do know how to choose good price pushes, then not only will they correct “biased” stock prices, they will increase their pile of cash, and we won’t need to give them any more.

If, however, regulators lose their pile of cash, let them come back to Congress begging for more, explaining how they had it all wrong before, but now they know when to push prices up versus down. And after very some public hang-wringing, let Congress give them another $100 billion to work with. And if regulators come back a few years later asking for even more money, explaining how they had it all wrong again, but now they know how to do it right, let Congress given them another very public scolding, along with another $100 billion.

And if regulators lose that pile, maybe Congress and the public will have had enough, and will quit the price fixing business. Fool me once, shame on you; fool me thrice, shame on me. The $300 billion will have been well worth it to clearly show regulator inefficiency, especially since that money would just have been transferred to financial speculators, the people who really rationalize stock prices.

Sadly, though, I suspect that many still wouldn’t get the clue.

Lileks writes about his trip to Trader Joe’s:

I bought some sauces, including a pasta sauce that turned out to be too brackish for my tastes, and a bottle of three-buck Chuck

I could swear that just last year, on my many trips to CA, it was still two-buck Chuck. When did it go up, and why by fifty percent? I know, it’s only a buck, but still.

[Update in the afternoon]

And speaking of Trader Joe’s, when are they going to start opening stores in south Florida? I’d think there’d be a huge market for them in Boca. I wonder if it has something to do with the state liquor regs? Looking at their site, it appears that the closest one is in Georgia.

Sounds like a bad day for the market. Of course, it never helps when the exchange for a major trading partner starts the day down almost ten percent.

[Update]

This is not investment advice (oh, no) but this is probably a buying opportunity.

Don’t be a science fiction writer.

Brian Doherty writes about the lives of Milton Friedman.

In Venezuela. Somebody needs to tell socialist authoritarians like Chavez that that trick never works.

Larry Kudlow gave a speech on Sunday in DC on “the greatest story never told.” He’s starting to tell it. You’d think that, with the Democrats running the Hill, the media would like to talk about the great economy now. But I guess they’re still afraid of George Bush getting any credit. (Not that presidents have that much to do with the state of the economy, contra all the people who foolishly didn’t want Clinton removed from office because we had a high stock market, but the tax cuts certainly helped.)