The Replacements

Libor—the London Interbank Offered Rate—is perhaps the liveliest dead man walking. It underpins more than $350 trillion in mortgages, commercial loans, bonds and derivatives worldwide; U.S. dollar Libor alone is the reference rate for $200 trillion in financial instruments. And yet virtually everyone in the financial sector acknowledges that Libor’s days are numbered. The British Financial Conduct Authority has said Libor will be sustained through … Continue reading The Replacements

Intellectual Capital

New York City
“Scary,” says Marilyn Fedak. She looks out the window from her corner office. Outside, a winter storm is raging. Whirling snow obscures the view of the Empire State Building and Rockefeller Center from her 39th-floor windows. In a few hours, the heavy snowfall will snarl travel and down power lines from D.C. to Boston. She pauses for a moment.

“It was so scary,” Fedak explains. “It’s not like I haven’t been through bear markets before. But this one was different. I don’t think people realize how close we came to the system breaking down. I felt like everything I had learned about the markets and investing over 40 years wasn’t working as it should.” Continue reading “Intellectual Capital”

Want to Fix New York Air Congestion? Try Competition

Transportation Secretary Ray LaHood’s rescission of a proposal to auction slots at New York City–area airports triggered a heated discussion at the Times’s Freakonomics blog. Stephen Dubner argues, based on a conversation with an airline pilot, that shutting down close-in LaGuardia Airport would improve air traffic flow over New York City and allow more traffic at JFK and Newark airports. Many commenters made the excellent point that it would be difficult for JFK and Newark, which are already near capacity, to handle LaGuardia’s traffic. (If you split up the passenger traffic at LaGuardia between JFK and Newark, that would mean a 24 percent traffic increase at JFK and a 33 percent increase at Newark.) This would inevitably increase the cost of flying to and from (and through) New York. Dubner’s correspondents recommend banning so-called regional jets at New York City airports, a proposal that is well and good but that is much easier done with pricing mechanisms than with arbitrary bans. Continue reading “Want to Fix New York Air Congestion? Try Competition”

Should We Privatize Airports?

In 1977, as a group of policymakers attempted to apply economic theory to the regulation of airlines, future American Airlines (AA) chairman Robert Crandall was not happy. Then an executive at AA, Crandall claimed that the economists’ ideas would ruin the airline industry. Things came to a head when he confronted a Senate lawyer prior to a hearing, reportedly shouting: “You f—king academic eggheads! You don’t know s—t. You can’t deregulate this industry. You’re going to wreck it. You don’t know a g——n thing!”

Thirty years after a bipartisan coalition passed the Airline Deregulation Act (in October 1978), the subject is still hotly debated. Continue reading “Should We Privatize Airports?”

The Dreaded R-Word

Is the U.S. economy in a recession? If it is, how long will it last—and how much will it hurt? Six American Enterprise Institute economists offered differing assessments at a panel discussion last week, ranging from Charles W. Calomiris’s view that “severe recession risk is minimal” to Desmond Lachman’s prediction of “several quarters of negative growth going forward.” Other panelists—including former Federal Reserve monetary affairs director Vincent R. Reinhart—addressed the Fed’s role in credit markets, specifically its March bailout of Bear Stearns.

Meeting for the first time since their December 2007 panel, the AEI scholars took a fresh look at the health of the economy. Continue reading “The Dreaded R-Word”

The Economy of God

Everywhere in the United States, people have more consumer choice in their exercise of religion than they do in almost any other sector of the economy. Individual parish churches, regardless of denominational affiliation, function as independent contractors of salvation in America’s religious free market. Christianity in the United States is dynamic, and American church history is littered with the relics and ruins of denominational change and theological innovation.

The brewing schism in the Episcopal Church, for example, should surprise no one familiar with the workings of America’s religious free market. Continue reading “The Economy of God”