George Selgin has an excellent set of posts discussing the myth that fractional reserve banking is inherently unstable. He concludes as follows:
Whereas empirical (as opposed to mythical) support for the “inherent instability” hypothesis is scarce, there’s no shortage of evidence favoring this alternative “legal restrictions” theory of banking crises. For starters, there’s the fact that some of the world’s least heavily-regulated banking systems have also been remarkably crises free. There is the fact that voluntary contracts allowing bankers to suspend convertibility of their liabilities—the most obvious private-market device for preventing runs—have frequently been outlawed. Finally, there are piles of evidence concerning the (often crucial) role other misconceived regulations have played in past banking crises—so much evidence, indeed, that it’s hard to discover any past banking calamity in which misguided regulations played no part. Besides the works just linked, skeptical readers are encouraged to consult Fragile by Design, Charles Calomiris and Stephen Haber’s excellent 2014 survey which, thick though it is, is but the tip of a very large iceberg.
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In his essay, “Monetary Theory and History: An Attempt at Perspective,” Sir John Hicks observed that “Monetary theory is less abstract than most economic theory; it cannot avoid a relation to reality, which in other economic theory is sometimes missing. It belongs to monetary history, in a way that economic theory does not always belong to economic history.”
What Sir John said of monetary theory necessarily goes for its subdisciplines. It follows that the theory of banking also “belongs” to monetary history, and therefore can’t avoid a relation to reality. The trouble with Diamond and Dybvig’s model is that its relation to reality is so very distant that the two might as well be perfect strangers.
I’ve also started subscribing to “Substacks”, including one by Matt Yglesias and another by Razib Khan. Khan ends a post on religion with the following observation:
The death of the godly nation that Europeans saw the United States as has not meant the rebirth of something fundamentally different. The nature of the people remains the same. Instead of apocalyptic street prophets, we now have unhinged YouTube celebrities. Rather than epistemological humility the human mind still prizes the certainty of beliefs that must not be questioned. Unseen forces, from George Soros to the Koch brothers dominate the demon-haunted minds of post-religious Americans, becoming our modern-day myths. Ultimately the faith in rationality was just that, another faith. Reason is a far less powerful motivator for human action than faith, whether we label it religious or not.
This is from an Yglesias post on Covid:
I know the public health community has a lot of raw feelings right now after being so blithely dismissed by Trump and tossed into the maw of partisan politics. And I agree that we could have parked this in a better outcome had Trump listened to them more closely.
But to get to the kind of dramatically better outcomes that we see on the other side of the Pacific would have required an approach that was more different from the range of outcomes under consideration in the United States. Maybe there are good reasons for that and enforceable quarantines, mandatory testing, and travel restrictions never would have flown in the United States. But the confused dialogue around masks and ventilation and the superior performance of countries exposed to SARS suggests to me perhaps simply that people and institutions were not adequately thoughtful about the specific dynamics of a respiratory illness which, after all, is quite different from Ebola or HIV/AIDS.
An added bonus is that in addition to being really smart, Yglesias and Khan are both quite witty, albeit more so in their tweets.