Inmates Run the Asylum

Just finished Russ’ podcast with Daron Acemoglu on inequality and the financial crisis. There’s a lot of interesting stuff here.

The genesis of the podcast is a book by Ragu Rajan that I haven’t read. The ideas (as discussed in the podcast) are familiar, though: measured inequality goes up, everyone freaks out, politicians figure subsidizing housing is a good response, a housing bubble emerges and every special interest under the sun (the poor, Wall Street, Real Estate, etc) makes a killing.

Acemoglu has a great stat about how politicians’ voting records correlate most highly with the surveyed priorities of the top third of the income distribution, somewhat well with the middle third and not at all with the bottom third. Lots of interpretations here:

My caricature of Bryan Caplan would say that the top third are the informed voters and the rest don’t matter because their desires are nonsensical and they don’t vote anyway.

Super lefties immediately go for the corruption angle.

Who knows.

Tyler Cowen’s awesome essay on financial regulation and inequality screams for a mention here. It taught me that bailouts are impossible to a avoid, really.

The only people who know enough to figure out how to engineer a non-bailout system or command enough authority to convince the polity that bailouts aren’t necessary are in the system!

Depressing stuff.