Category: Equitablog

Must- and Shall-Reads:

• Stanley Fischer: =The Federal Reserve and the Global Economy
• Paul Hannon: Regulators Are in the Dark on Shadow Banking, Says BOE’s Jon Cunliffe

1. Heather Boushey and Carter Price: How Are Economic Inequality and Growth Connected?: A Review: “Ostry, Berg, and their IMF colleague Charalambos Tsangarides include an analysis of the impacts of redistribution, as well as market inequality. They find that economic growth is lower and periods of growth are shorter in countries that have high inequality as measured by the Gini coefficient of income after taxes and transfers.43 In the same paper, the researchers show that transfers (redistributions of income from upper to lower income individuals) do not harm economic growth—at least up to a point consistent with policies in other wealthy nations. This most recent work provides strong evidence that higher levels of income inequality are detrimental to long-term economic growth and that the policies some nations have taken to redress inequality not only do not adversely impact growth but, instead, spur faster growth. Notably, this finding applies to both developed and developing countries…”

2. Paul Krugman: Europanic 2.0 – NYTimes.com “Anyone who works in international monetary economics is familiar with Dornbusch’s Law: ‘The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.’ And so it is with the latest euro crisis… the euro area as a whole, which is sliding into a deflationary trap with the ECB already essentially at the zero lower bound. Draghi can try to get traction through quantitative easing, but it’s by no means clear that this could do the trick… and… he faces severe political constraints…. What strikes me, also, is the extent of intellectual confusion that remains. Germany still seems determined to regard the whole thing as the wages of fiscal irresponsibility, which not only rules out effective fiscal stimulus but hobbles QE, since it’s anathema for them to consider buying government debt. And it’s remarkable, too, how the logic of the liquidity trap remains elusive even after six years–six years!–at the zero lower bound. Not the worst example, but I read Reza Moghadam…. Augh! If it’s external competitiveness you’re worried about, depreciating the euro is what you want, not wage cuts. And cutting wages in a liquidity-trap economy almost surely deepens the slump. How can this not be part of what everyone understands by now? Europe has surprised many people, myself included, with its resilience. And I do think the Draghi-era ECB has become a major source of strength. But I (and others I talk to) are having an ever harder time seeing how this ends… non-catastrophically…. What’s your scenario?”

3. Dean Baker: David Leonhardt Wonders Why Its Cold In the Winter and Wages Aren’t Rising: “The economy is still way below potential GDP…. The employment to population ratio is still close to 4.0 percentage points below its pre-recession level. Even if we restrict the question to prime age workers… to eliminate the issue of retirement, the drop is still 3.0 percentage points. The share of the workforce involuntarily working part-time is still more than 50 percent above its pre-recession level…. There is still a large amount of slack in the labor market…. With the answer right in front of him, like the French colonel in Casablanca, Leonhardt rushes to round up the usual suspects…. Unfortunately, the data refuse to cooperate…. The wages for recent college grads has fallen sharply since 2000…. The obvious issue is that we need more demand in the economy. That can be most easily accomplished with more government spending…”

4. Pedro Nicolaci da Costa: Fed Can’t Keep Falling Short of Inflation Goal, Says Evans: “The Federal Reserve can afford to keep interest rates at zero at least until inflation rises to its 2% target, which will probably not happen in the next two years, Chicago Fed President Charles Evans said Saturday…. He said the central bank shouldn’t raise interest rates until early 2016 since much ground needs to be made up on inflation and employment…. Mr. Evans says he sees the U.S. economy, which has been stumbling along at an annual rate of growth of around 2% since the start of the recovery from the recession, picking up to a pace closer to 3%… unemployment remains elevated and inflation is still well below the central bank’s official 2% target… the Fed should be symmetric about hitting its inflation target, and that staying below it for a prolonged period was equally problematic as hovering above it… sees inflation staying below the Fed’s 2% objective ‘well past 2017’. That view underpins his position, one of the most aggressive at the central bank…”

5. Steve Randy Waldmann: Scale, progressivity, and socioeconomic cohesion: “US taxation may not be as progressive as it appears because of sales and payroll taxes, but European social democracies have payroll taxes too, and very large, probably regressive VATs…. Universal taxation for universal benefits seems to work a lot better at building cohesive societies than taxes targeted at the rich that finance transfers to the poor, because universality engenders political support and therefore scale. And it is scale that matters most of all…. How can a regressively financed program making regressive payouts reduce inequality? Easily, because no (overt) public sector program would ever offer net payouts as phenomenally, ridiculously concentrated as so-called ‘market income’…”

Should Be Aware of:

• Jeff Spross: America’s Biggest Solar Provider Has A New Way To Make Rooftop Systems More Affordable

1. Kevin O’Rourke: Sinking, fast and slow: “For well over a year now some of us have been pointing out that the Eurozone crisis was entering a very dangerous phase, in which slowly increasing unemployment would eat away at the foundations of Europe’s societies, while short-sighted politicians and excitable journalists proclaimed that the Euro was saved…. I find myself worrying most about France. Twiddling their thumbs and hoping that something (the economy) will turn up, flawed macroeconomic policy notwithstanding, seems to have been the French government’s master plan up till now…. You may think that Paul Krugman is being too alarmist when he raises the possibility of President Le Pen, and I hope you are right. But Sarkozy’s apparent return to the political fray does worry me. Of course, you may think that if he wins the UMP nomination, the Left will rally round and vote for him when it comes to the second round. How confident are you about that?”

2. Barkley Rosser: The Washington Post’s Fred Hiatt Hysterical Over Losing His Schtick: “For years, this Editor of the Editorial page of the Washington Post has made his named appearances on the editorial page (he daily bloviates the main ed lead anonymously) only to call for cutting Social Security, and occasionally Medicare as well… [also] R.J. Samuelson, Ruth Marcus, and even more recently, Catherine Rampell. I almost wrote on this when he went nuts over this on Monday, but Dean Baker whonked on him pretty solidly immediately, pointing out how stupid and ridiculous he looked, declaring that while today’s US debt/GDP ratio is 74%, with near zero interest rates, ten years from now the CBO says it will be 78%, which Hiatt hysterically declared to be ‘dangerous’…. The ridicule has mounted, some of it more general, some of it more specific…. John Podesta, whom he cited in his Monday WaPo piece, perhaps the single most stupid and embarassing column he has ever written, has dumped all over him in on Twitter with an accompanying column…. So, let me add my two bits to this that none of the above have yet said. First of all, it is amazing that when confronted with good news from the CBO that medical care costs are falling, leading to declining future deficit projections, Hiatt does not applaud, indeed, does not anywhere in his column even note that this is a change…. So, I feel sorry for Fred. Beating up on seniors who have paid in their taxes for what they are getting has been the one an only topic that has inspired him to write columns under his own name for many years. The new projections of lower deficits, good news to most of us, simply do not register with him…”

3. Matthew Yglesias: The real problem with Nate Silver’s model is the hazy metaphysics of probability: “The most interesting subplot of 2012 US election coverage was the battle between the poll-oriented quants–most famously Nate Silver–and sundry television know-nothing pundits who insisted based on their guts that Mitt Romney was going to pull it out. The 2014 horserace has produced… a proliferation of quantitative models based on poll aggregation… [and] its own entertaining feud between the famous, entertaining, and media-savvy Nate Silver and the less-known Princeton University scientist Sam Wang…. We’re never going to know which model is correct…. If we got to look at 100 or a 1,000 midterm elections, we’d end up with a pretty good sense of whether Silver’s forecast or Wang’s forecast is the more accurate one. But elections simply don’t happen that frequently…. Which isn’t to say we should go back to the bullshitting-on-television approach to understanding elections. Rather, we should try to remember the high-level points that all these models have in common, namely “the candidate leading in the polls usually wins” and “aggregating polls is more accurate than looking at particular ones.” Unlike fussing over the details of 51 percent vs 57 percent, these are actionable insights…. Smart people are really good at devising sophisticated explanations for why their preferred outcome is also the likely one…”

Dean Baker: David Leonhardt Wonders Why Its Cold In the Winter and Wages Aren’t Rising: “The economy is still way below potential GDP….

…The employment to population ratio is still close to 4.0 percentage points below its pre-recession level. Even if we restrict the question to prime age workers… to eliminate the issue of retirement, the drop is still 3.0 percentage points. The share of the workforce involuntarily working part-time is still more than 50 percent above its pre-recession level…. There is still a large amount of slack in the labor market…. With the answer right in front of him, like the French colonel in Casablanca, Leonhardt rushes to round up the usual suspects…. Unfortunately, the data refuse to cooperate…. The wages for recent college grads has fallen sharply since 2000…. The obvious issue is that we need more demand in the economy. That can be most easily accomplished with more government spending…

• Paul Krugman: Europanic 2.0 – NYTimes.com “Anyone who works in international monetary economics…

…is familiar with Dornbusch’s Law: ‘The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.’ And so it is with the latest euro crisis… the euro area as a whole, which is sliding into a deflationary trap with the ECB already essentially at the zero lower bound. Draghi can try to get traction through quantitative easing, but it’s by no means clear that this could do the trick… and… he faces severe political constraints…. What strikes me, also, is the extent of intellectual confusion that remains. Germany still seems determined to regard the whole thing as the wages of fiscal irresponsibility, which not only rules out effective fiscal stimulus but hobbles QE, since it’s anathema for them to consider buying government debt. And it’s remarkable, too, how the logic of the liquidity trap remains elusive even after six years–six years!–at the zero lower bound. Not the worst example, but I read Reza Moghadam…. Augh! If it’s external competitiveness you’re worried about, depreciating the euro is what you want, not wage cuts. And cutting wages in a liquidity-trap economy almost surely deepens the slump. How can this not be part of what everyone understands by now? Europe has surprised many people, myself included, with its resilience. And I do think the Draghi-era ECB has become a major source of strength. But I (and others I talk to) are having an ever harder time seeing how this ends… non-catastrophically…. What’s your scenario?

Heather Boushey and Carter Price: How Are Economic Inequality and Growth Connected?: A Review: “Ostry, Berg, and their IMF colleague Charalambos Tsangarides…

…include an analysis of the impacts of redistribution, as well as market inequality. They find that economic growth is lower and periods of growth are shorter in countries that have high inequality as measured by the Gini coefficient of income after taxes and transfers.43 In the same paper, the researchers show that transfers (redistributions of income from upper to lower income individuals) do not harm economic growth—at least up to a point consistent with policies in other wealthy nations. This most recent work provides strong evidence that higher levels of income inequality are detrimental to long-term economic growth and that the policies some nations have taken to redress inequality not only do not adversely impact growth but, instead, spur faster growth. Notably, this finding applies to both developed and developing countries…

Talking Points: Global Cross-Fire: Secular Stagnation or Policy Paralysis?

1. “Secular stagnation” is a misleading phrase. It was coined by Alvin Hanson in the 1930s to describe a fear that an exhaustion of technological opportunities in a world monetary system that still possessed a nominal anchor to gold would generate a sub-zero full-employment Wicksellian natural rate of interest. But we don’t have an exhaustion of technological opportunities. We don’t have a monetary system with a nominal anchor to gold.

2. What we do have are rates of inflation in the DMs that expose us to severe downside macroeconomic risks, and a lack of risk tolerance and risk-bearing capacity in the United States that keep even the lowest of attainable safe interest rates from producing high enough equity and capital valuations to make it profitable to boost investment enough to push DM economies to anything like full employment.

3. There have not yet been any convincing stories of how a trend growth drop would have emerged in the absence of the investment shortfall, the labor skills atrophy, and the other channels of “hysteresis” that have been in operation since 2008.

4. The only major supply shock in the past decade has been a positive one: the unexpected emergence of new hydrocarbon-extraction technologies like tracking. We could have a large adverse hydrocarbon-supply shock from political turmoil at the borders of Muscovy. But we have not yet.

5. What to expect from interest rates? They will, of course, fluctuate. The modal scenario I see in the United States is one in which the Federal Reserve begins raising interest rates too early–a la Sweden at the start of this decade–and then has to return to the ZLB in a year or two as the economy weakens. The optimistic scenario is that that of the smooth glide-path to the normalized, Goldilocks economy. The pessimistic scenario is another adverse shock hits demand while the Federal Reserve is still too close to the ZLB to effectively respond, and political gridlock gives the United States another lost decade.

6. What to expect from interest rates? They will, of course, fluctuate. The modal scenario I see in the Eurozone is one of continued waves of crisis as Eurozone breakup fears cause spikes in interest rates in the European periphery, as the ECB then does enough to calm markets but not enough to generate recovery, that Germany makes covert fiscal transfers to keep the pain low enough to keep the Eurozone together–and winds up spending much much more than if it had bit the bullet back in 2000. In that scenario German growth over the medium term remains at best adequate as the chronic Eurozone crisis both diminishes confidence and keeps German exports competitive.

7. The pessimistic scenario is one of Eurozone breakup–with German interest rates even lower than they are, and peripheral European interest rates high with redoubled risk premium. The optimistic scenario is that somehow, some way, the Confidence Fairy appears and the Eurozone has a smooth glide-path to a normalized, Goldilocks economy.

8. The source of the chronic crisis is a shortage of aggregate demand coupled with deep structural woes that originated in the decision by German banks to loan massive amounts to the Eurozone periphery. Those loans pushed costs in the Eurozone periphery up to levels that are in strong disequilibrium in the absence of continued capital outflows from Germany.

9. Since the chronic crisis had a German origin–in the lending decisions of German banks–it is only appropriate that it have a German solution–adjustment via German fiscal expansion and via the implicit real debt writedowns generated by moderate German inflation should be part of the solution.

10. Back in 1829, the young British economist John Stuart Mill was the first to argue that the market monetary economy there would not be enough spending to employ everyone who could be profitably employed at the wages they demanded if and only if the economy lacked enough cash and cash-like assets to make households, businesses, and savers as a group happy with their holdings of means of payment and potential collateral.

11. The provision of those cash and cash-like assets has to be the business of the national or currency-area government–if not of a super-continental monetary and financial hegemon–because no private entity has the power to make its liabilities legal tender and thus the ability to guarantee their acceptance in transactions and as collateral.

12. The ECB is tasked with this Millian objective of providing the eurozone economy with the means of payment and stores of value–cash and potential collateral–that the economy needs. The ECB is failing.

13. Fourth quarter-to-fourth quarter real GDP growth in the eurozone in 2013 was 0.5%. Fourth quarter-to-fourth quarter real GDP growth in the eurozone in 2013 looks to be 0.4%. December-to-December inflation in the eurozone in 2013 was 0.9%. December-to-December inflation in the eurozone in 2014 looks to be 0.0%. The ECB’s annual inflation target is 1.75%. Given the potential for catchup in the European periphery to higher productivity standards, that can only be attained via nominal eurozone GDP growth of 4%-5%/year. The 1.4% nominal GDP growth we saw in 2013 and the 0.4% nominal GDP growth it appears we will see in 2014 tell us that the ECB has fallen further behind the curve than it was at the end of 2012: 7.2%-points further behind the curve than it was then.

14. One possibility is that the ECB is failing because it cannot do so, for every time it creates a reserve deposit it does so by withdrawing A high-quality liquid asset from the private market place, and so to first-order leaves the stock of cash plus potential collateral unchanged. Perhaps the ECB cannot carry out its million objective without engaging in what would be regarded as fiscal policy.

15. Another possibility is the ECB is failing because financial Germany believes that the ECB’s target must be not a 1.75%/year inflation target for the eurozone, but a 1.5%/year or less inflation target for Germany–and that Mario Draghi is not powerful enough to overrule financial Germany in the corridors of power in the ECB and hence cannot do whatever it takes.

16. In this context, I am reminded of Ludger Schuknecht’s exchange with Martin Wolf back in 2012, in which Schuknecht said, among others things: “Mr Wolf’s solution… is risk transfer via eurobonds… and demand stimulation via cheaper money and less fiscal consolidation in Germany. But the public and markets have been led to believe in short-­term measures for far too long….” “expansionary policies and weak fiscal positions… created the current problems…” “fiscal consolidation and structural reforms… have invariably succeeded wherever they have been implemented…” “any decision to disregard the rules or introduce ill­-suited tools such as eurobonds could undermine… confidence…” “Germany must not undermine its role as an anchor of stability via inappropriate and ineffective fiscal stimuli…” “German and European interests are indeed very much aligned and they are reflected in the jointly agreed strategy…”: the policies that the eurozone has undertaken over the past 2.5 years were, to his eyes back in 2012, already dangerously radical and already pushing the utmost of the envelope that Germany could allow. Yet now we clearly need more…

Must- and Shall-Reads:

• Andy Dubbin: As sea level rises, so does money spent denying it
• The Oatmeal: Christopher Columbus was awful (but this other guy was not)
• John Podesta: Deficit anxiety is not the answer. Here’s what America needs to do
• Clay Shirky: Publishing and Reading
• Bo Rothstein and Eric Uslaner: All for One: Equality, Corruption, and Social Trust
• Daniel Davies: A Disquisition on the Nature of Debt
• Barry Eisler: The Heart of the Matter: Franklin Foer: “Stop Amazon, Keep Publishing Exactly As It’s Always Been!”
• Nick Rowe: Helicopters, redemption, and the target
• Brooke Masters: Satya Nadella’s bad karma over remarks on women’s pay

1. Daniel Davies: A Disquisition on the Nature of Debt: “Debt… is a promise to pay back a specific amount of money at a specific time. Why is it so popular–why do people always seem to end up getting into it? Why, for example, don’t people make more equity investments?… Debt has one big advantage… the same advantage that market economies have over command economics–it’s really really efficient in terms of the amount of information that people need to gather about each other. If you’re lending money under a debt contract, all you need to think about is ‘Do I think this guy is good for the money?’, and all the borrower needs to think about is ‘Can I pay this back?’. If you’re trying to make an investment and share the risks, all sorts of other questions come into play: ‘How much could this be worth in a really good outcome? What further projects might grow out of this one? What effect will the sharing of the upside and downside have on the way the thing is managed? Am I selling my shares too cheap?…. David Graeber wrote a whole gigantic book, one of the messages of which was that from an anthropological view, debt contracts denatured exchange relationships and took them out of their context of cultural human interactions, but in my review, I noted that Graeber didn’t seem to appreciate the extent to which this is a collossal time saver…. And this even extends into credit analysis. I once calculated, to win a bet… that… if banks were to carry out a full credit assessment on all of their counterparties every time they incurred a new exposure then this would take up all of the time of every Chartered Financial Analyst ever to have got the qualification, doing nothing other than these credit checks. It’s literally impossible for the system to work without a degree of blind faith that most credits are money-good. The conclusion… is that… from both the banks’ and Greece’s point of view, these weren’t bad loans–they were good loans which went bad…. All of which isn’t to say that the banks deserved to get paid back, quite the opposite… the 70% writedowns that they took should… be regarded as… just punishment…. Everyone made decisions just as bad as the Greeks, but as I say, Greece was less able to deal with the consequences…”

2. Barry Eisler: The Heart of the Matter: Franklin Foer: “Stop Amazon, Keep Publishing Exactly As It’s Always Been!”: “If Foer wants to claim Amazon is a ‘monopoly’, that’s just routine thoughtlessness…. But then he goes on to make a claim that can only be the product of shocking ignorance or brazen deceit: ‘That term [monopoly] doesn’t get tossed around much these days, but it should.’ Holy shit, ‘Amazon is a monopoly’ doesn’t get tossed around much these days?! Did Foer even read the George Packer piece he cites?…Has he read David Streitfeld in the New York Times, or Laura Miller in Salon?… Just Google “Amazon Hachette Monopoly” and see what you come up with. I see three general possible explanations for Foer’s remarkably inaccurate claim: 1.  Foer is embarrassingly ignorant…. 2. Foer is aware of how hoary the ‘Amazon is a monopoly’ meme has become… but doesn’t want to admit he has nothing new to say…. 3.  Foer is aware of how hoary the ‘Amazon is a monopoly’ meme has become, but believes no other activist… has been sufficiently alarmist… is adequately conveying just how terrifying it all is. 4. Foer… also knows you can lend an air of false gravitas to bogus claims and conspiracy theories by implying the mainstream media is too cowed to Speak The Truth…. Really, is it possible to write a 3000-word article–with references to articles that themselves claim Amazon is a monopoly–and genuinely believe ‘the term monopoly doesn’t get tossed around much these days’?… The tendentiousness in Foer’s argument isn’t even what’s most interesting about it. What’s implicit is even more so: that it would actually be bad if more people could afford to buy books by Salman Rushdie and Jennifer Egan. How is this view any different from the arguments that must have been made against the Vulgate Bible, or the Guttenburg printing press? ‘Tsk, isn’t this just going to make reading more accessible to the unwashed masses?’ If you haven’t read it already, I can’t recommend highly enough this article by Clay Shirky about the aristocratic, elitist, narcissistic worldview always inherent in the minds of people like Foer…”

3. Nick Rowe: Helicopters, redemption, and the target: “What makes helicopter money truly helicopter money… is the announced increase in the price level target or NGDP level path target that accompanies the helicopter. ‘Helicopter money’ with no change in the target is not like Willem Buiter’s helicopter money, because that extra ‘helicopter money’ will need to be redeemed at some (unknown) time in the future, at the same future price level as before, and so the ‘helicopter’ increases the real value of government liabilities. Furthermore, if the central bank announces an increase in the NGDP level path target, that reduces the real value of government liabilities, and this converts some of the previously existing money into helicopter money ex post facto. You don’t need the helicopter. If the government halves Pm, it converts half the money that already exists into helicopter money…”

4. Brooke Masters: Satya Nadella’s bad karma over remarks on women’s pay: “It is hard to believe he would have said the same thing to a man…. At Facebook, they lean in. At Microsoft, they lean out. This week, when Satya Nadella, chief executive of the Redmond, Washington-based software group, faced a question about what women should do to be paid more, he firmly stuck both feet in his mouth. ‘It’s not really about asking for the raise, but knowing and having faith that the system will give you the right raises as you go along’, he said, adding that such patience was ‘good karma’.”

Should Be Aware of:

• Arthur I. Miller: Imagery in Scientific Thought
• Daniel Davies: “I can work out Greek words phonetically, as long as they stick to using letters that are also the names of important physical constants or option pricing parameters. And once you’ve worked out the transliteration, most of the stuff that’s on billboards or menus is going to sound like either the English word or the French one or the Italian one.”

1. Matt O’Brien: Uh-oh, the credit rating agencies are up to their old tricks again: “As far as financial crisis villains go, the credit rating agencies never get enough, well, credit. But now they’re reminding us that even—or especially—nincompoops can blow up the global economy when you play them off against each other with the promise of a quick buck…. It was dumb enough to create a system that encourages the credit rating agencies to take a Panglossian view of the bonds they’re supposedly rating. It’d be even dumber to leave it in place after we’ve seen what a disaster it is.”

2. Dara Lind: This immigration program drove a state official to suicide. It could give Dems the Senate: “One of the insane and convoluted subplots in South Dakota’s insane and convoluted Senate race — which could be the race that decides which party controls the Senate after Election Day — is a scandal involving the Republican candidate, Mike Rounds, who’s the former governor of the state. The scandal became public last fall, after one of Rounds’s former cabinet officials committed suicide. It turned out that he was facing a likely indictment for “diverting” (i.e., stealing) $550,000 in state funds when he killed himself. Since then, dribs and drabs of information have come out about massive conflicts of interest in the way Rounds’ administration administered its EB-5 visa program, an obscure initiative that is designed to attract foreign capital to the United States but which is often criticized as an open invitation to corruption. Most recently, it came out last week that Rounds had actually been named in a lawsuit that one visa recruiter filed against the state — even though Rounds had been saying he was not involved. The saga involves a failed beef plant, some shady public-private partnerships and millions of dollars pocketed from foreign investors. But at its center is the EB-5 visa — which lets immigrants come to the US and get green cards for putting hundreds of thousands of dollars into US businesses.”

3. Mohamed A. El-Erian: Why Is the Fed Thinking Globally?: “Outside of crisis periods — and we aren’t in one — the U.S. Federal Reserve normally behaves and speaks as if the U.S. is essentially a closed economy. Not so at its last policy meeting. The minutes released this week contain an unusual focus on both the world economy and the value of the dollar; and the drivers are a mix of old and new — at least they should be…”

• Weekend Reading: Daniel Davies: A Disquisition on the Nature of Debt: “Debt… is a promise to pay back…

…a specific amount of money at a specific time. Why is it so popular–why do people always seem to end up getting into it? Why, for example, don’t people make more equity investments?… Debt has one big advantage… the same advantage that market economies have over command economics–it’s really really efficient in terms of the amount of information that people need to gather about each other. If you’re lending money under a debt contract, all you need to think about is ‘Do I think this guy is good for the money?’, and all the borrower needs to think about is ‘Can I pay this back?’. If you’re trying to make an investment and share the risks, all sorts of other questions come into play: ‘How much could this be worth in a really good outcome? What further projects might grow out of this one? What effect will the sharing of the upside and downside have on the way the thing is managed? Am I selling my shares too cheap?…. David Graeber wrote a whole gigantic book, one of the messages of which was that from an anthropological view, debt contracts denatured exchange relationships and took them out of their context of cultural human interactions, but in my review, I noted that Graeber didn’t seem to appreciate the extent to which this is a collossal time saver…. And this even extends into credit analysis. I once calculated, to win a bet… that… if banks were to carry out a full credit assessment on all of their counterparties every time they incurred a new exposure then this would take up all of the time of every Chartered Financial Analyst ever to have got the qualification, doing nothing other than these credit checks. It’s literally impossible for the system to work without a degree of blind faith that most credits are money-good. The conclusion… is that… from both the banks’ and Greece’s point of view, these weren’t bad loans–they were good loans which went bad…. All of which isn’t to say that the banks deserved to get paid back, quite the opposite… the 70% writedowns that they took should… be regarded as… just punishment…. Everyone made decisions just as bad as the Greeks, but as I say, Greece was less able to deal with the consequences…

Barry Eisler: Franklin Foer: “Stop Amazon, Keep Publishing Exactly As It’s Always Been!”: “Then he goes on to make a claim that can only be the product of shocking ignorance or brazen deceit: ‘That term [monopoly] doesn’t get tossed around much these days, but it should.’ Holy shit, ‘Amazon is a monopoly’ doesn’t get tossed around much these days?! Did Foer even read the George Packer piece he cites?…Has he read David Streitfeld in the New York Times, or Laura Miller in Salon?… Just Google “Amazon Hachette Monopoly” and see what you come up with. I see three general possible explanations for Foer’s remarkably inaccurate claim: 1.  Foer is embarrassingly ignorant…. 2. Foer is aware of how hoary the ‘Amazon is a monopoly’ meme has become… but doesn’t want to admit he has nothing new to say…. 3.  Foer is aware of how hoary the ‘Amazon is a monopoly’ meme has become, but believes no other activist… has been sufficiently alarmist… is adequately conveying just how terrifying it all is. 4. Foer… also knows you can lend an air of false gravitas to bogus claims and conspiracy theories by implying the mainstream media is too cowed to Speak The Truth…. Really, is it possible to write a 3000-word article–with references to articles that themselves claim Amazon is a monopoly–and genuinely believe ‘the term monopoly doesn’t get tossed around much these days’?…

The tendentiousness in Foer’s argument isn’t even what’s most interesting about it. What’s implicit is even more so: that it would actually be bad if more people could afford to buy books by Salman Rushdie and Jennifer Egan. How is this view any different from the arguments that must have been made against the Vulgate Bible, or the Guttenburg printing press? ‘Tsk, isn’t this just going to make reading more accessible to the unwashed masses?’ If you haven’t read it already, I can’t recommend highly enough this article by Clay Shirky about the aristocratic, elitist, narcissistic worldview always inherent in the minds of people like Foer.

Nick Rowe: Helicopters, redemption, and the target: “What makes helicopter money truly helicopter money…

…is the announced increase in the price level target or NGDP level path target that accompanies the helicopter. ‘Helicopter money’ with no change in the target is not like Willem Buiter’s helicopter money, because that extra ‘helicopter money’ will need to be redeemed at some (unknown) time in the future, at the same future price level as before, and so the ‘helicopter’ increases the real value of government liabilities. Furthermore, if the central bank announces an increase in the NGDP level path target, that reduces the real value of government liabilities, and this converts some of the previously existing money into helicopter money ex post facto. You don’t need the helicopter. If the government halves Pm, it converts half the money that already exists into helicopter money…