Political Entrepreneurs

The Economic Engine of Political Change

Category: Banking & Finance

Institutional Detail on the Armchair

May 6th, 2014 by Edward Lopez

Armchair theory can sometimes look naive from the perspective of institutional detail. Case in point, my recent post on high-frequency trading in which I speculate how best to allocate the privilege that HFTs enjoy of proximity to exchange servers and access to dark pools. In other words, what do the HFTs pay for their advantage? And who is receiving these payments? Clearly there are capital investments (a form of private sector rent seeking). But I wonder if there are forms of licensing…
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Property and Contract Rights in High Frequency Trading?

April 30th, 2014 by Edward Lopez

Robert Levy, Chairman of the Cato Institute, responds to Burton Makiel and Aurthur Levitt’s Wall Street Journal op-ed on the most recent firestorm over high-frequency trading (HFT). Highlighting its downsides, critics have called for bans and regulations to stem or eliminate the practice. These critics allege the practice lends unfair advantage to large and inside traders relative to small and retail traders, worsens market volatility such as flash crashes, and amounts to “front-running”. Levy’s approach is to…
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Financial Services Regulation: The New Ability-to-Repay Rule

January 11th, 2013 by Wayne Leighton

On January 10, 2013 the Consumer Financial Protection Bureau released new proposed rules related to mortgage lending standards. In effect, the agency will implement an “Ability to Repay Rule” to govern those who engage in mortgage lending. Here’s the agency’s announcement , which offers few details. This news report from the Wash Post’s business section is more informative. The new rules will apply to “qualified mortgages” and are designed to keep lenders from issuing loans to borrowers who…
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Recommended Reading on Financial Regulation

January 8th, 2013 by Wayne Leighton

The Mercatus Center at George Mason University has been doing a fine job of chronicling the details of financial services regulation following the 2008 crisis. See, in particular, the research of the seventeen members of its Financial Markets Working Group . Today Mercatus announced that two of its scholars, Hester Peirce and James Broughel, have edited a new book on Dodd-Frank, “the largest and most complex piece of financial services legislation in American history.” Check out Dodd Frank: What It Does and…
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Quantitative Easing and Market Distortions

January 7th, 2013 by Wayne Leighton

In yesterday’s post , I noted that members of the Federal Open Market Committee are starting to discuss the Fed’s latest quantitative easing, in particular the size and duration of a program that includes purchases of Treasury securities and mortgage-backed securities. What really needs to be asked is 1) whether this policy is distorting the market rate of interest (which, if it is, will distort investment decisions and set the economy on the path to bigger…
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The Federal Reserve and Quantitative Easing

January 6th, 2013 by Wayne Leighton

On January 3, 2013 the Federal Open Market Committee (of the Board of Governors of the Federal Reserve) released the minutes of its last meeting, held December 11-12, 2012. As has already been widely reported but is worth remembering, the Fed decided that it will  continue monetary expansion with a combination of 1) purchase of Treasury securities and 2) purchase of mortgage-backed securities (MBS). The following key (or “money”) paragraph is taken from the Committee’s minutes…
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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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