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This long post by Steve Randy Waldman has been getting attention in the econ blogosphere and is a slamming bit of writing that's also clear and coherent and seems to explain a lot.


The two money quotes, so to speak:

With respect to Greece, the precise thing that European elites did to set the current chain of events in motion was to replace private debt with public during the 2010 first "bailout of Greece." Prior to that event, it was obvious that blame was multipolar. Here are the banks, in France, in Germany, that foolishly lent. Not just to Greece, but to Goldman's synthetic CDOs and every other piece of idiot paper they could carry with low risk-weights. In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc. Cash flowed into Greece only so it could flow out to rickety banks. Now, suddenly, the banks were absolved. There were very few bad loans left on the books of European lenders, everyone was clean, no bad actors at all. Except one. There were the institutions, the "troika," clearly the good guys, so "helpful" with their generous offer of funds. And then there was Greece. What had been a mudwrestling match, everybody dirty, was transformed into mass of powdered wigs accusing a single filthy penitent (or, when the people with their savings in just-rescued banks decide to be generous, a petulant misbehaving child).

For the record, my sophisticated hard-working elite European interlocutors, the term moral hazard traditionally applies to creditors. It describes the hazard to the real economy that might result if investors fail to discriminate between valuable and not-so-valuable projects when they allocate society's scarce resources as proxied by money claims. Lending to a corrupt, clientelist Greek state that squanders resources on activities unlikely to yield growth from which the debt could be serviced? That is precisely, exactly, what the term "moral hazard" exists to discourage. You did that. Yes, the Greek state was an unworthy and sometimes unscrupulous debtor. Newsflash: The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a "loan." It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors' prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place.
There were several comments challenging his contention that "In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc. Cash flowed into Greece only so it could flow out to rickety banks." Here is his response:


Of course, as I've said often, I'm not an economist and don't have the knowledge or ability to truly evaluate such arguments. That Waldman’s explanations resonate with me is actually not a good reason to think they're right, in fact is a warning light. Not that it’s a reason to think his explanations are wrong, either. But one of the things that resonates is that the villains in Waldman’s story, the European policy and business elites, created and chose a story that resonated with them and that gave them a villain and scapegoat and simultaneously absolved themselves of the responsibility for examining what they themselves had done and for changing what they’re now doing. The psychology behind their story choice isn’t unlike mine, though I’m not an actor in this story and my self-interest is purely psychological. I’ll also quickly point out that Waldman is emphatically not saying there were no other bad actors, or, for that matter, that there was never any idealism or genuine concern mixed into the elite behavior. The sin he identifies in the elites is their refusing to acknowledge that there was a Europe-wide failure that involved many parties, and that there was a system that encouraged it.

More links )

Tsipras capitulates? )
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Emailed this to Dave and Mark the day after the election:

As for yesterday's election, it went even worse than I'd feared (though so far it looks as if the Dems held onto the governor's office in Colorado, though just barely). My only thought, which is not necessarily correct as far as winning elections goes, but:

Of the commercials I saw (mainly while trying to watch YouTube; watching, say, Spanish-language TV could've been a different story), the commercials for Mark Udall, the Democrat, and loser, in the Colorado senate race, mainly attacked his opponent on social issues (Gardner's long opposition to abortion, his confusion around birth control, etc.), while the Republican commercials, for Cory Gardner, consistently attacked Udall on his economic policy. Of course what the Repub ads said was wrong, but that's not my point. We Democrats need to be running against the Repubs on economic issues. But — this is my opinion and my wish, and I'm sure that lots of people would consider it unrealistic — this means that at some point the Dems
have to decide that a significant portion of the electorate isn't too busy or stupid to understand some basic, comprehensible, but counterintuitive principles of macroeconomics, if we're willing to take minutes at a time to teach them. Otherwise, the Dems have no good response when the Repubs simulate being responsible and thoughtful by attacking us for running up debt and deficit and accuse us of burdening the future with our current profligacy etc. etc. Of course, most Dems don't know macro either (and I hardly do, but I've got some sense from Krugman of the basic principles), and whom I mean by "Dems" and “Democrats" and "we" and "us" in this paragraph isn't altogether consistent...
This means that a significant number of Democratic leaders themselves need to understand a few core macroeconomic principles and be willing to communicate them to voters, and a significant number of us rank-and-file Democrats need to understand those principles and communicate them to other Democrats and to the independents and Republicans who are willing to listen.

I'm not claiming to understand macroeconomics enough to truly evaluate the core principles, but I think I know a few of them:

(1) If, in order to save money and pay down debt, everyone is cutting back expenditures at once, none of them will succeed in cutting their own debt. This is because your spending is my income and my spending is your income; so when a lot of people are cutting back, your and my and everyone's respective incomes will fall as far or farther than our cutbacks, we'll turn out to be worse off, and the economy will go into a depression.

(2) In these conditions, cutting taxes on private industry and the very rich will have little or no stimulating effect. This is because private industry and the rich are not going to invest in factories, goods, and services when demand is falling. Instead, they'll sock their savings away.

(3) But a government can counteract the debt spiral and the savings glut by stepping up and spending money. This will get the economy back on its feet.

(4) In the conditions I described in 1 and 2 (so, in these conditions, not in all conditions), this extra government spending isn't going to cause interest rates to rise or cause excess inflation. Now, not having studied macro, I don't claim to understand all the reasons here. But, for example (I'm quoting Paul Krugman), since the private sector has excess savings that can't be invested, government borrowing "gives some of these excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending, at least not until the excess supply of savings has been sopped up." (See here and here.)

(5) Overall (so, now not just talking about current conditions), if the economy is growing faster than interest on government debt, we're not burdening future generations by government borrowing or by deficits. (Which doesn't mean we should always run deficits. But that's a different matter.) I'm sure I'm being too simplistic in the way I've written this point. But I hope it gives a gist and that it's correct.

As I've said, I'm not claiming the expertise to evaluate the ideas I've written here (which are basically my attempts to copy what I've read). But the thing is, it isn't that Republicans and pseudo-responsible centrists have counter-arguments to these points. They don't know that the points exist.* Neither do most lawmakers, and neither does most of the populace. And neither do most of the people likely to read my livejournal, I'm guessing. (Not that many people read my livejournal.)

Anyway, while we may have the constitutional right to be ignorant, it's time we weren't. And billions of people will suffer and millions will die if we don't decide to learn something, and communicate what we know.

*There are exceptions, of course. Ben Bernanke is a Republican, for instance.
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Always meaning to post more, and also need to comment on a shitload of things (three Mark Sinker threads need more input from me — Inuit tech, Oasis, hallway-classroom [UPDATE: Sinker links added] — not to mention what I owe Mark behind the scenes). In the meantime, here are links to four five blogposts from Paul Krugman on the use of models. Krugman's saying that to understand anything about economies you have to make simplifying assumptions, simpler often being better as long as (1) the models still tell you something useful and (2) you know when life is telling you to turn 'em off or rethink 'em. Subtheme is that, according to Krugman, many conservatives do this absolutely backwards, that is, refuse to turn off the microeconomics model as the supposed source from which all macroeconomics must derive, while at the same time decrying macroeconomic models that could save billions of people suffering and millions of lives if policy makers would act on them.

Dare To Be Silly

Too Much Faith In Models, Capital Taxation Division

Economic Realism (Wonkish)

Jean Tirole and the Triumph of Calculated Silliness

The State of Macro, Six Years Later [UPDATE: Added this link here (it's the "Subtheme" link above) because Krugman states his concerns more emphatically than he had in his previous post]

The New Economic Geography, Now Middle-Aged [UPDATE: Added this link here, and here's where I originally discussed it]

Also, there was this, from me:

Neither rational nor irrational

The discussion with Mark, if I ever have time for it, would include my own justification for my simplifying assumptions (hallway-classroom, for instance; also, the Rolling Stones and call-and-response, also jocks-burnouts-and-sometimes-freaks) and where he and I need to create more of them.
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Say I want to understand human financial behavior. The behavior is actually complex, but if I make the following simplifying assumptions I can at least have a place to start, and can make some calculations, predictions, etc.

(1) In the financial decisions (e.g., job choice, hiring, shopping, selling, investing) all people are trying to maximize their monetary profit or "financial" value and to cut their losses.

(2) Given the available information, people go about this pretty well (e.g., this apple at this store costs $2.00 a pound, the identical apple at that store costs $3.00 a pound, both stores are equally easy to get to and I'm going to both stores anyway for other reasons, so I buy the apple at the first store not the second).

(3) When things don't turn out so well, people modify their understanding of the information and (subject to the caveat in the footnote) they seek new, better information.*

We can say that, given assumption number 1, in doing numbers 2 and 3 people are being rational and that when people don't do 2 and 3 they're being irrational. But this all rests on the simplifying assumption number 1, that in all their financial decisions they're trying to maximize income or financial value etc. But to want to maximize money and financial value in the first place is neither rational nor irrational. And we know, or ought to know, that number 1 in itself is not altogether true, that maximizing profit is not the only motive in play: we posited it as a simplifying assumption so we could get a grip on economic behavior. Motives — such as loss aversion and brand loyalty — that run counter to profit maximizing are no more irrational (or rational) than maximizing profit is, and are no more or less emotional either.**

This is on my mind for two related reasons.

First, a couple of Paul Krugman posts about the parts of macroeconomics that have no "microfoundations" but nonetheless seem to describe macro results better than the alternatives: actually, I'm as ignorant of microeconomics as macro, but I do think that micro has simplifying assumptions that include something like my numbers 1 through 3 above, and that's exactly (or maybe not exactly) why the macro that's micro-based can't explain sticky wages and so on. (I don't pretend to understand the posts to any depth, by the way. But note the word "hyperrational" in the first post and "rational expectations" in the second, which I'm guessing mean that it's taken for granted by some people that assumption number 1 is in itself rational.)

Second, I recently got Daniel Kahneman's highly worthwhile Thinking, Fast And Slow from the library for the second time (I didn't finish it 11 months ago when it first became due), and I think if asked he would, or at least ought to, subscribe to my paragraph above beginning "We can say that..." But actually his language slips a lot, and "rational" and "emotions" sometimes float by in his text without explaining themselves. (I do believe he talks explicitly about at least one of them in the part I haven't read yet; but that doesn't mean he knows what he's doing when the words creep in earlier.)

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Footnotes )
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It's out of the U.S. headlines, but news from Cyprus keeps getting worse.

Cyprus forced to find extra €6bn for bailout

This is all a stratosphere beyond my understanding, but is there any reason whatsoever for Cyprus to stay in the eurozone?* All the banking disruption that such a move would precipitate has already happened anyway. If the country exits, it can devalue its currency and at least maybe become a real cheap destination for tourists. At least that's a theory. Otherwise, where does its economy come from? The equivalent "devaluation," if Cyprus stays in the eurozone, will be through major unemployment, and drops in wages too. Right?

By the way, if you're curious, last month I was updating my previous Cyprus thread whenever I noticed a new idea or analysis. Not that the analyses are mine. I provided links.

Meanwhile, warning flares are shining in the sky above Portugal.

*By "eurozone" I don't mean the European Union, rather just the members whose currency is the euro.
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Damned if I know.

Been online at a few U.S. and Brit papers to see if they think it merits a link on the visible Webpage. Yes: NYTimes, LATimes, Boston Globe, Washington Post, Denver Post, Telegraph, Guardian, Financial Times, The Independent, The Times. No: Chicago Tribune, Philadelphia Inquirer, Miami Herald.

I'd say that's pretty good except most of the U.S. links are just passing along the Associated Press story of Cyprus and the EU trying to figure out a way to renegotiate so the terms won't clomp down quite so hard on every depositor. And many of the Brit sheets are merely stuck on the idea that some British nationals might lose money in the next day or two. But the NYTimes, the Telegraph, the Financial Times, and the Independent got the issue that immediately jumps to mind if you're on the lookout for international financial calamities. As Paul Krugman put it in his blog:

The big problem, however, is that it's not just large foreign deposits that are taking a haircut; the haircut on small domestic deposits is a bit smaller, but still substantial. It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying "time to stage a run on your banks!"

Tomorrow and the days immediately following should be very interesting.
The Financial Times leads with, "Europe botches another rescue," and editorializes, "Like other European island states before them, the people of Cyprus are discovering who pays to keep a metastised banking sector alive."

I have no idea what this leads to, of course. Presumably European leaders (whoever they are) assure everyone, "This is just Cyprus, with its specially weird banking situation."
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Here are the first two paragraphs of an AP article by Pan Pylas and Frances D'Emilio ("Italian election inconclusive; global markets drop") on the market response to the Italian election results. I've bolded the text that I find questionable, my question being how do the writers know that what's worrying investors is that the next government won't carry on the austerity policy (as opposed to investors' worrying that the ECB won't continue to implicitly be willing to back Italian bonds in the case of a run)? The second bit of bold is for wondering how European leaders know that austerity reforms are a good way to deal with Italian debt (as opposed to such policies exacerbating the debt); and further, how do the writers know that this is what all European leaders believe?* Not that I in particular know better. Rather, I know that there are counter-explanations and counter-arguments (e.g., Paul Krugman's) that aren't mentioned in this supposedly hard-news story.

ROME (AP) — Italy emerged from elections Tuesday with no clear winner, driving markets around the world markedly lower as investors worried that one of Europe's biggest economies would be unable to build a governing coalition that can stay the course on unpopular austerity measures.

A day after polling ended, a few seats in Parliament based on Italians' voting abroad still remained to be decided, but their numbers won't ease the gridlock. European leaders pleaded with politicians in Italy to quickly form a government to continue to enact reforms to lower Italy's critically high debt and spare Europe another spike in its four-year financial crisis.
In contrast, David Jolly in the New York Times assigns the market reaction to uncertainty, without specifying or speculating on what the market wants Italy's policies to be, though he quotes some foreign government figures on what they want the policies to be.

*In fairness to Pylas and D'Emilio, when they write "European leaders pleaded..." they don't explicitly say that all European leaders are on-board with the pleading; and Jolly uses the same "European leaders" trope that Pylas and D'Emilio do. But in both pieces, there's no hint that Europe's leaders might not be of one mind on this topic. (My impression from reading Krugman and DeLong is that the IMF — or at least some key players in the IMF — are in dissent on austerity, though I haven't read the IMF reports.)

My thought here (not knowing anything more about Pylas and D'Emilio, but guessing e.g. that they're college grads or at least people who've read up on and tried to understand economics) — and this applies pretty much in general, not just to reporting of economics — is that people trained to think don't actually know how to think. Or their thinking hits a wall, without their being aware that they're at a wall, and have crashed to stillness.
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In endorsing the work of this guy (though Krugman probably has a stronger technical basis in economics for his endorsement):

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Dave over on Tumblr:

I like voting in it — stayed on board for the Jackin’ Pop year (voted in both polls) and have thought about staying on this year, since for better or worse it’s the only huge critics poll. Glenn McDonald is still doing stats, which alone kind of makes me want to participate. Just wondering if anyone is staging a parallel poll or “vote for Hinder” style shenanigans.
I'm voting (also voted in '06, when they fired Chuck and Xgau and, not incidentally, shut the door on me, too). The poll obviously doesn't mean what it once did: it's not going to reveal many surprises, since these days polls and wrapups and sum-ups are all over the Internet weeks and months prior. Also doesn't have the brains on call it once had. But it's the only place where ballots and writers show up in bulk, and it can provide an excuse for mass taking-of-stock all over the Web, not just at the Village Voice site. I remember some exciting ILM back-and-forth back in the day. Better some chance for a mass taking-of-stock than zero chance of a mass taking-of-stock, and there's no good reason for me not to be part of it.

Sistar Bedbug )
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I just posted these Krugman links on the "Persuade An Atheist" thread, where they're tangential. Krugman is quoting and floating ideas about technological advances making workers superfluous in some areas and thereby increasing income inequality. I decided this needed more attention — that is, Krugman says it needs attention ("it's important stuff"!), and presumably he's right.


Additional factors or explanations cited:


More detailed explanation, potential scenarios:


What's happening right now is that we are seeing a significant shift of income away from labor at the same time that we're seeing new technologies that look, on a cursory overview, as if they're capital-biased.
Supporting evidence:

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Proposal for a social psychology experiment:

We'll use four separate, sizable groups of people, say 75 people in each group. (Not that I know if that amount is any good or not, or if we want our overall pool to be similar socioeconomically. I'm not a statistician.)

Ask each member of Group One:

What arguments would you use to try and persuade an atheist to consider that there might be a God after all?
[It's likely that at least a few people in each group will be atheists, but that's no reason they shouldn't try to answer the question.]

Ask each member of Group Two:

Cheryl tells you she is an atheist. What arguments would you use to try and persuade her there might be a God after all?
We're trying to see if by giving our atheist a name, so a potential personal, individual history, we elicit responses here and there that are different in type from what we generally got in Group One.

Ask two questions of each member of Group Three:

Group Three Question 1: Cheryl says she is an atheist. What arguments would you use to try and persuade her there might be a God after all?
It's important that the subjects complete the first question before seeing the second.

The crucial question is under the cut )

How to have fun in groups )

Four hypotheses )

Fishing expedition )
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Of the top fifty songs on last Thursday's Billboard K-pop chart, seven of them have been charting for ten weeks or longer. Here they are, in ascending number of weeks:

Busker Busker "It's Hard To Face You" 10 weeks
Verbal Jint "Good Morning" 10 weeks
Juniel "Illa Illa" 10 weeks
Wonder Girls "Like This" 11 weeks
Big Bang "Monster" 11 weeks
Kim Tae Woo "High High" 12 weeks
Shinyoo "Hands Of The Clock" 51 weeks

51 weeks doesn't mean that "Hands Of The Clock" began its run 51 weeks ago. It just means that the Billboard K-pop chart is only 51 weeks old, and that's when they started counting. The track could be years old, for all I know. Maybe decades old. The singer looks a couple of decades younger than I am, but I'm more youthful at heart. Here's a live version that was uploaded to YouTube in December 2009:

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It's currently at 32, the highest it's been in the Billboard K-pop era.*

We've talked about it before. Me: "In the olden days, this would have been my stereotype of what Asian pop sounds like." Also, "Presumably, it's old people who listen to this. I'm an old person, and I like it." (Probably like it somewhere between 4 and 6 points, but let's not quibble.) [livejournal.com profile] arbitrary_greay: "Holy cow that sounds like some generic Chinese karaoke staple. I can hear the color change scrolling through the karaoke captions on a flickering blue screen." [livejournal.com profile] davidfrazer: "You might enjoy Bret's visit to the noraebang from Flight of the Conchords."

T-ara holding nearly steady )

My opinion of Ferguson-Krugman dustup substantially final, despite my investigation being desultory )
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Or not.

Dueling headlines, both from the Associated Press:

ECB's Draghi: Bank may intervene on bonds (this is the one that claims a clear message)

Draghi authority tarnished as Germany blocks plan

(Top piece by David McHugh, bottom by Colleen Barry.)
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Paul Krugman can't make up his mind ("EMU Gets Ostrichized"):

Or maybe head in the sand isn't the right metaphor — maybe it's deer in the headlights, with policy makers paralyzed as it all goes wrong. Anyway, I'm with Tim Duy: I'm losing confidence in European leaders, which is hard because I had hardly any confidence to start with.
And if you click Krugman's Tim Duy link, you get Duy saying:

The devastating train that is the debt crisis keeps rolling right along, currently crashing through Spain's economy.
— which of course is an allusion to the venerable Slow-Motion Train Wreck.

But fortunately I'm not running into Kicking The Can Down The Road this time, not where I'm looking; that was always a problematic metaphor anyway. Not that it's never apt, but the tendency is for it to be appropriated by Fake Adults who look and feel mature when they're ignorantly demanding that we need to ward off inflation NOW, and solve debt problems by immediately cutting spending, etc.

Whatever it takes )
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My understanding of economics is so poor that statements that are immediately obvious to some people still contain unbridgeable ellipses for me. But here's a passage from Paul Krugman's End This Depression Now that I think, if I were to reread it five or six times, I may end up understanding. At least I'll post it here for reference. I know this is no substitute for understanding IS-LM curves (on the long-term lol to-do list), but at least it may give me some idea why government borrowing when we're in a liquidity trap doesn't drive up interest rates. (The block quote in the Krugman excerpt is from a May 2009 blog post of his in which he does bring up IS-LM curves.)

Loanable funds )

(Context of this is Niall Ferguson apparently assuming that if the government borrowed there'd be no buyers/lenders, so the Fed would have to do the buying itself, which would drive down the price of government bonds and drive up interest rates by the law of supply and demand, too many bonds and not enough buyers — if I'm understanding the Ferguson passage right [quoted by Krugman on p. 135], which I may not be.)
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On one level I suppose all of this is very funny, but if you look past the surface violence and simple abusiveness to the person at the center it's not funny at all. The reason it's not is the aforementioned ambivalence. Jungle war with bike gangs is one thing, but it gets a little more complicated when those of us who love being around that war (at least vicariously) have to stop to consider why and what we're loving. Because one of the things we're loving is self-hate, and another may well be a human being committing suicide. Here's a quote from a review of Iggy's new live show in the British rock weekly Sounds: "Iggy's a dancer and more, a hyper-active packet of muscle and sinew straight out of Michelangelo's wet dreams... who leaps and claws at air, audience and mike stand in an unsurpassable display that spells one thing—MEAT." Ignoring the florid prose, I'd like to ask the guy who wrote that how he would like to be thought of as a piece of meat, how he thinks the meat feels. Or if he thinks it feels at all. Yeah, Iggy's got a fantastic body; it's so fantastic he's crying in every nerve to explode out of it into some unimaginable freedom. It's as if someone writhing in torment has made that writing into a kind of poetry, and we watch in awe of such beautiful writhing, so impressed that we perhaps forget what inspired it in the first place.
--Lester Bangs, "Iggy Pop: Blowtorch In Bondage," Village Voice, 28 March 1977

I remember, not well, someone having written, probably in the early '70s, maybe a letter to the editor, maybe it was to Creem, and someone wrote maybe a brief reply to the letter, maybe unsigned, maybe it was Lester who wrote the reply. The writer was lamenting the absence of Buddy Holly. If Buddy had lived, he'd be doing great things, said the letter, said the writer. And the reply was No! If Buddy had lived he'd being playing Vegas just like any other oldie living off his past, his work no longer mattering except as a walking corpse of a reminder that it once had mattered.

So Lester. He never totally got his shit together, not just chemically but intellectually. But he didn't give up. If he asked a question, the question didn't disappear, didn't get a glib answer from him and then evaporate or hang around like a vague fart, a mist of buzzwords answered by another mist of buzzwords. The questions gnawed at him, repeated, didn't leave him alone.

If he'd lived, I think it would have made a difference. I don't know what his follow-through would have been — he could get lost in an enthusiasm of words and anguish — but I know there would have been one. Maybe it'd just end up as Lester's filibuster. But the questions would ride him, would at least fight to stay addressed. And this is where Lester is different from all my colleagues. I complain from time to time that rock critics, music critics, people in my rockwrite/musicwrite/wrong world, don't know how to sustain an intellectual conversation. My complaints don't help anybody, since whatever the message is in my own writing, the idea that there's a joy in discovery, in unearthing the unknown, that you interact with what's in front of you, with the everyday, and see a new world each time you look, each time you act, but only by thinking, testing, challenging, re-wording and re-phrasing — this message doesn't get across, doesn't get felt, I guess. There's a basic unshakable dysfunction and incompetence in my world, which amounts to dishonesty, a pretense of thought without actual thinking.

Don't know that Lester really knew how either, but given that the conversation, the questions, wouldn't leave him, I imagine he'd have given it a shot.
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"'The euro zone is a slow-motion train wreck,' Mr. Roubini said during a separate panel discussion."

Slow-wreck aficionados will note that this is better than a couple of months ago, when Europe was on the train-wreck fast track owing to the ECB's then-unwillingness to purchase Spanish and Italian bonds.*

Confused centipede attempts to mate with mealworm pupa

*It's not directly purchasing them now, but, according to Krugman at any rate, it's doing the functional equivalent, essentially laundering the purchases through banks.
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My understanding of economics is so primitive that I don't even have a good idea of what I need to know but don't. But beyond the basic "supply and demand" stuff, I'd say the crucial concepts one needs to understand right now are (a) cumulative advantage and (b) IS-LM curves. The first I grasp so well — or think I do, anyway — that I wrote about it for the Las Vegas Weekly. But the latter is something I'm not yet close to understanding. I gather it's a critically important technical elaboration on one of Keynes' most crucial ideas and that it's a model that reconciles two apparently contrary stories of what determines interest rates ("reconciles" may be the wrong word: the IS curve gives you one set of possible interest rates, the LM curve gives you another, and where the two intersect is where you'll get your interest rate). Also, it's a model, not a law, but it's one that helps us understand the situation we're in — except that I'm not yet one of the "we" who understand it.

Paul Krugman wrote a blog post last October attempting to explain IS-LM to people like me ("IS-LMentary"), but the explanation still contained too many ellipses — too many points I needed explained further, or at least that I hadn't yet been able to see into. My greatest difficulty was with his explanation of the LM ("liquidity-money") curve. I've bolded the two sentences that were just too condensed for me. If there's anyone who would like to walk me through them real slow, pointing out all the notable sights and features, please do so. Or maybe you could direct me towards someone who can explain this more thoroughly than Krugman did in that post. (I assume it's in some textbooks; but also, if Krugman can't explain it easily, it's probably not easily explainable — not to me, anyway.) Krugman:

In that case, the interest rate must be such as to match the demand to the quantity of money )

I'm not understanding the word MUST )

The world keeps going rectangular )
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Excuse me while I continue not to post on something I sort of know how to think about — music — and instead post again on what other people are saying about the European economy. Krugman links a piece by fellow NY Times writer Floyd Norris in which Norris argues that the European Central Bank has figured out a way to get European bonds bought without seeming to be the one that is doing so. If I'm getting this right (and why should I be?) the ECB is loaning money to banks at piddling rates so that, e.g, Italian banks can turn around and at a nice profit buy Italian bonds, and Spanish banks can turn around and buy Spanish bonds. So, while declaring adamantly that it's not buying bonds, the ECB is in effect subsidizing the bond purchases. Norris:

There is no limit on what the banks can do with the money. But there is an obvious, virtually risk-free, option. A bank can buy short-term securities of its own government and pocket the difference — up to four or five percentage points — for the life of the securities.


What can go wrong for a bank that follows that course? The obvious one is that the governments default. But for a Spanish bank owning Spanish bonds, or an Italian one with bonds from its government, that is really not a risk worth worrying about. They would be dead whether or not they had bought more bonds.

This still may not be enough to save the EU, and it won't stop [what Krugman insists daily are] Europe's self-defeating austerity policies; but Norris believes it gives Europe several years. So if Norris is right, we're not facing the collapse that seemed imminent last time I posted.

Krugman thinks Norris's analysis seems good, but also thinks that this action in itself won't be enough to save Europe, and Norris thinks the same thing )
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NY Times: European Central Bank Dashes Hopes for Bolder Action

Some people who believe that they know what they're talking about think that the European leaders really have no clue as to what they're doing. (This post adds nothing to my last post on this issue.)


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