Economics Links, 5/3/2025

Peter Wallison on bank safety and the Fed; Virginia Postrel on personality and jobs; Sam Hammond vs. Oren Cass; Matt Yglesias on rent-seeking

Peter Wallison writes,

it would be best for all concerned if the supervision of the banking system were completely separated from the policies of the Fed. Without having to worry about the banks, it could focus fully on what is good for the economy.

I have a more cynical view. The Fed’s true focus purpose is credit allocation. Primarily, this involves making sure that the government can market its debt, but secondarily it involves supporting the mortgage market. As for “what is good for the economy,” I think that the Fed neither has the ability or the desire to achieve that. I see the 2008 financial crisis as illustrating my thesis. The key players in the government debt market were bailed out, while the economy went into a steep recession. In this case, the dubious saying “The purpose of a system is what it does” actually is descriptive.

Virginia Postrel writes,

today’s well-paid “masculine” jobs generally require more self-discipline than the regimentation of a factory. A construction site has bosses but you don’t work at machine pace. The same is true of a warehouse or hospital. Autonomy has increased but, with it, so has the need for continuous self-control, even in environments where workers and results are strictly monitored.

Sam Hammond writes,

Oren Cass has been in the unenviable position of having to defend Trump’s tariffs in the abstract while disagreeing with their implementation in almost every detail:

• Cass favors the universal 10% tariff but thinks it should be statutory.

• Cass supports a strong decoupling from China but believes the tariffs should be phased-in and not apply to U.S. allies.

• Cass supports pairing tariffs with proactive industrial policies, such as the CHIPS Act that Trump has taken to denigrating.

My own view is that Trump’s tariffs are disastrously bad and that Cass’s preferred regime wouldn’t be much better.

Hammond is punching down, intellectually.

Matt Yglesias writes,

There are valid public interest reasons to have regulations. But there are also lots of opportunities to use regulation to play the game of concentrated benefits and diffuse costs. If you’re a dentist and you can get a rule on the books saying that a hygienist can’t clean teeth unless she’s employed by a dentist, that is a very good rule for you personally. It’s a bad rule for most people, but most people don’t care that much about dental policy. So intense interest group lobbying, combined with the fact that dentists can abuse their status as experts to pretend there’s a valid public health reason for this restriction, can generate bad scope of practice rules about dentistry.

His post starts out by saying that econ 101 is under-rated by non-economists. But this paragraph is about Public Choice theory, which is under-rated in econ 101. In any case, it is a good post.

substacks referenced above:

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Econ 101 is underrated

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Oren Cass’s Labor Theory of Value

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Wanted: Manly Jobs for Manly Men