Work’s getting “exciting” in its usual way. Have some more econ links.
Here’s a chart that explains a lot:
That’s right, kids: For about a decade price signals would’ve told you that Greek and German long-term debt carried about the same amount of risk. Que hablo bullshit?
This graph comes from an unlikely chain of links: It originates with George Soros, was popularized by Paul Krugman, and came to my attention via Reason Hit & Run. I’m proud of you, Internet. Hit that link for some context; I’ll quote the bit that I like the best:
When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries.
(That’s from Soros, btw.)
It’s incredibly frustrating. The political and policy world falls into two camps:
Those who believe no stimulus is necessary, everything is supply-side. Those who believe stimulus is necessary but only fiscal stimulus can or should supply it.
It’s like people completely forgot the existence of Milton Friedman, and decided to revert to the stupidest possible version of New Keynesianism, where interest rates are the only lever of monetary policy and the printing press is something that only functions when rates are above zero.
I feel like to both the centre left and the right, Milton Friedman is too heretical now — too right-wing for the left obviously and too left-wing for the right. Consequently, everything about monetarism has been stripped out of the public consciousness and we are left with vulgar Keynesianism and vulgar Austrianism.
We truly live in a Dark Age of economics.
I’m not sure that I’m not contributing to this Dark Age, but at least over the past few years I’ve become more aware of the limitations of my understanding — mostly by reading people like Tyler Cowen and Nick Rowe, who’re far better-educated and -informed than I am and don’t hesitate to point out how hard macro is. But at least I’m not dropping turds like this one into the internet punch bowl:
If the federal government would simply institute a full suspension of the payroll tax, the economy would be fine again in no time.
It’s quite simple, really: If the federal government takes too much money out of people’s paychecks, the economy tanks.
(That’s from the comment thread on Tyler’s post.)
I’m going to call this the “There I fixed it” model of economic thought. Just as you can fix anything with duct tape and zip-ties — those contractors and mechanics are just screwing you over, man — you don’t actually need to know what an IS/LM model does or understand public choice theory to know exactly what’s wrong with the economy, and somehow it’s always something brutally simple. (You’ll find TIFI economics on both sides of the ideological divide; usually you can simply negate one statement to find its TIFIE contrapositive.)
Sticking with the Europocalypse, here’s Warren:
- Not a sign of good health (Coyote Blog)
This is really bad news. Investing in these securities is effectively the equivalent of putting money in one’s mattress — it means that investors don’t perceive any money-making uses for their money better than paying paying financially strong governments to keep it safe for a while.
Have a nice day.
Update: And just as I hit “post”, this internets-winning gem from Will Wilkinson popped up in my inbox:
- Civilizing thirst (The Economist)
GIGANTIC sugared soft drinks are disgusting. Let’s just get that out of the way. Can we also agree that the high-calorie drinks rich people like to consume—red wine, artisanal beer, caramel frappuccinos, mango smoothies with wheatgrass and a protein boost—aren’t at all disgusting? At any rate, we yuppiepinot-drinkers know how to look after ourselves. In contrast, the wretched classless hordes, many of them being of dubious heritage, lack the refinement of taste necessary to make autonomy unobjectionable. Those who abuse their liberty, filling the sidewalks of our great cities with repulsive shuffling blimps, can’t expect to keep it, can they?
Will lays out a convincing case that the soft-drink ban is largely (heh heh) about frappuccino-swilling patricians signalling contempt for Coke-swilling plebeians. (Minor quibble: Can we stop citing Gary Taubes as if he’s an actual scientist? He has an impressive background and track record, but it’s not like he’s the one studying fructose metabolism in rat models. Cite the papers, credit Taubes for reporting on them.)