Self-Motivation
David Goggins
Former Navy Seal
Career Development
Bryan Cranston
Actor
Critical Thinking
Liv Boeree
International Poker Champion
Emotional Intelligence
Amaryllis Fox
Former CIA Clandestine Operative
Management
Chris Hadfield
Retired Canadian Astronaut & Author
Learn
from the world's big
thinkers
Start Learning

A Little Inflation Would Do Us Good

Question: What are the constraints on the Fed that prevent it from moving beyond its typical role as inflation fighter to address employment, another key part of its mission? (Ryan Avent, The Economist)

Vernon Smith:  Well the Fed has already I think taken actions in roughly the last year. The excess reserves have risen by about a trillion dollars and that has huge inflationary potential depending upon what kind of endgame strategy the Fed follows in getting us out of this huge potential expansion in credit in the private economy.  Of course it’s not been a problem because those excess reserves have not led to any kind of undesirable credit expansion in the private economy because there is just no demand for loans right now. The reason my coauthor Steve Gjerstad and I said that some inflation might be a good thing at the present time is that it is one way to get the relative price of homes up.  If you inflate basically the rest of the economy by 6 percent then you correct that imbalance between the price of homes, which have gone way up during the boom went way up out of proportion to other prices in the economy, so it’s important for the relative price of homes now to come back to more standard historical levels if you’re going to get a natural resumption in the demand for housing.  And of course the problem in setting about and creating a 6 percent inflation rate to give you that relative price change is simply that you might not be able to control those forces once they’re unleashed, so in a way our recommendation is somewhat tongue and cheek.  I think that a little inflation now would be a good thing.  Yes, it would, but the question is how do you achieve just a little bit of inflation and not get too much. 

Question: One of the problems with TARP was an inability of the treasury to come up with an auction design that would correctly reveal the value of the toxic assets and fear of overpaying led them to be cautious to the point of never actually implementing the program to any significant degree.  Is there any way to design an alternative market mechanism that will value these assets next time?  (Mark Thoma, Economist’s View)

Vernon Smith:  I really can’t answer that.  It would require a pretty extensive experimental examination of the issues here to really come up with the question of whether you could design an auction for the treasury to dispose of these toxic assets.  You know the problem people have described it as just a reverse auction where instead of the treasury being a seller of treasury securities as they have had a lot of experience with. See, the treasury sales securities to multiple buyers in treasury auctions and here you have the treasury buying from multiple sellers of these toxic assets, but the problem is that these assets are not homogeneous.  When the treasury is issuing securities to multiple buyers there isn’t any difference. Every one of these securities is exactly like every other one, so that the buyers do not have the problem of valuing a mix of heterogeneous items.  It’s a homogeneous set of items that are being offered up for sale.  Private auctions don’t have any difficulty valuing heterogeneous assets.  What they do is put them up to for sale one at a time.  If you got to Christie’s or Sotheby’s, the auction houses, they auction items, heterogeneous items either singly or in very maybe very small groupings that are relatively homogeneous and if you’re going to do a multiple unit auction of dissimilar items that’s a challenging problem and the whole…  You know the original proposal didn’t make any sense to me and of course they quickly found out what I think is obvious, which is that the treasury is simply not practiced at all in running  that kind of auction and they backed off to as well they should have.

Recorded on December 15, 2009  

Nobel Prize winning economist Vernon Smith says the question is, how do you achieve just a bit without getting too much?

Live on Tuesday | Personal finance in the COVID-19 era

Sallie Krawcheck and Bob Kulhan will be talking money, jobs, and how the pandemic will disproportionally affect women's finances.

Bubonic plague case reported in China

Health officials in China reported that a man was infected with bubonic plague, the infectious disease that caused the Black Death.

(Photo by Centers for Disease Control and Prevention/Getty Images)
Coronavirus
  • The case was reported in the city of Bayannur, which has issued a level-three plague prevention warning.
  • Modern antibiotics can effectively treat bubonic plague, which spreads mainly by fleas.
  • Chinese health officials are also monitoring a newly discovered type of swine flu that has the potential to develop into a pandemic virus.
Keep reading Show less

Education vs. learning: How semantics can trigger a mind shift

The word "learning" opens up space for more people, places, and ideas.

Future of Learning
  • The terms 'education' and 'learning' are often used interchangeably, but there is a cultural connotation to the former that can be limiting. Education naturally links to schooling, which is only one form of learning.
  • Gregg Behr, founder and co-chair of Remake Learning, believes that this small word shift opens up the possibilities in terms of how and where learning can happen. It also becomes a more inclusive practice, welcoming in a larger, more diverse group of thinkers.
  • Post-COVID, the way we think about what learning looks like will inevitably change, so it's crucial to adjust and begin building the necessary support systems today.
Keep reading Show less

How DNA revealed the woolly mammoth's fate – and what it teaches us today

Scientists uncovered the secrets of what drove some of the world's last remaining woolly mammoths to extinction.

Ethan Miller/Getty Images
Surprising Science

Every summer, children on the Alaskan island of St Paul cool down in Lake Hill, a crater lake in an extinct volcano – unaware of the mysteries that lie beneath.

Keep reading Show less

Why is everyone so selfish? Science explains

The coronavirus pandemic has brought out the perception of selfishness among many.

Credit: Adobe Stock, Olivier Le Moal.
Personal Growth
  • Selfish behavior has been analyzed by philosophers and psychologists for centuries.
  • New research shows people may be wired for altruistic behavior and get more benefits from it.
  • Times of crisis tend to increase self-centered acts.
Keep reading Show less
Quantcast