Wednesday, March 18, 2009

Macro Odds and Ends

From calculatedrisk via Brad Delong, this graph is interesting. Leaving aside the ups and downs of the business cycle, there seems to be a general downward trend in capacity utilization. I wonder what accounts for that. Apparently the capital stock is expanding faster than we can make use of it. This could also be a measurement problem of some kind.

Arnold Kling has a fantastic blog entry on financial regulation. This is something that seems to elude most commentors on economics: regulation is always backward-looking; it is not prepared to deal with new kinds of crises. It is even possible that the old form of regulation is what leads to new forms of crises. Because markets almost always innovate faster than regulators can keep up, financial crises (bubbles, bank runs, etc.) may be inevitable and unavoidable. Sure, they always seem avoidable in hindsight--"if only we had done X, this crisis would not have occurred"--but setting up institutions to stop these problems before they start may be impossible.

Note that I'm not saying (and Kling is not saying) that markets always get things right. What I'm saying is that it may not be possible to create regulation that keeps markets from sometimes going wrong.