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on bubbles

thoughtful short article

So few writers direct their musings to reality rather than to theories. As an example, I constantly wonder at people who do not come to terms with the fact that if people, organisations or countries can't pay their debts, then they won't pay their debts.

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why we have to bail out banks

A correspondent has suggested that instead of giving money effectively free to the banks through ultra-low interest rates, supposing money was printed and just distributed equally amongst the people.

That poses some considerable problems. The main reason for inflating/corrupting the currency was to bail out millions who were in over their heads in debt.

The banks act as a (government controlled) mediating system. Giving money at random or even equally spread, would not solve the core problems. Giving it to the banks allows the banks to supervise the writing off of the debts.

Returning to the real problem: the people and institutions in over their heads, if they are handed the money without hindrance, this evokes grave problems of 'moral hazard' (look it up).

What people call 'bailing out the banks' was just about the only route available once the god awful mess generated by the Democrat party and the likes of Brown the Clown, and some other irresponsible actors.

Compare it with a traffic accident. You'd rather it didn't happen, but some oaf has crashed and caused much damage to themselves and others. Consider the surgeons who now have to cut big holes in the damaged bodies. They'd much rather not cut them about, but the alternative is even worse.

Nobody sane wishes to 'bail out the banks', but any alternative is much worse. The banks are a critical part of modern human communication systems. If you don't bail them out, then trade/communications break down.

And that is just far more expensive in damage to society.

That the banks have been nationalised makes the whole system interconnected. It is a confusion to believe that banks are independent businesses, even in the 1930s (prior to nationalisation) the intermeshing of banking meant contagion spread the damage.

I can see no easy way of stopping these major banking messes. They tend to occur every 70 years or so, as the old men with experience die off.

the eu steamroller

Recommended reading.

foreign exchange turnovers, 2001-13

"Germany must always be treated with care on the auto industry, France on agriculture and Britain on the nexus of banking, insurance, and finance that we call the City - unloved though it is, though I fail to see the superior morality of selling big cars to Russian oligarchs, or undercutting African farmers with subsidised EU grain. That rule has been violated since the Lehman crisis. There has been a systematic squeeze on the City, driven in part by emotional spasms and by the urge to blame the rolling financial cataclysms since 2008 on the immediately visible agents of crisis rather than the deeper causes - excess world savings that must go into bubbles, the structure of globalisation and the inherent failings of monetary union."

Flashboys by Michael Lewis

W. W. Norton & Company, hbk, 2014

ISBN-10: 0393244660
ISBN-13: 978-0393244663

$16.77
amazon.co.uk

Kindle edition
Penguin, 2014
555 KB
ASIN: B00I9PVKKC
$19.40 [amazon.com] {advert}

obamanomics in the usa, or following the example of miliband, balls and brown

Obama is doing to the USA what Brown the Clown, Miliband and Balls were doing to the UK in the noughties, described in an hour-long lecture on the dishonesty of government statistics.

59:00 mins

A dizzying array of numbers - not for the innumerate.

mankiw on income distribution

From one of the few 'economists' worth reading. [26-page .pdf]

"Imagine a society with perfect economic equality. Perhaps out of sheer coincidence, the supply and demand for different types of labor happen to produce an equilibrium in which everyone earns exactly the same income. As a result, no one worries about the gap between the rich and poor, and no one debates to what extent public policy should make income redistribution a priority. Because people earn the value of their marginal product, everyone is fully incentivized to provide the efficient amount of effort. The government is still needed to provide public goods, such as national defense, but those are financed with a lump-sum tax. There is no need for taxes that would distort incentives, such as an income tax, because they would be strictly worse for everyone. The society enjoys not only perfect equality but also perfect efficiency.

"Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. ..."
—
In my view, this thought experiment captures, in an extreme and stylized way, what has happened to US society over the past several decades. Since the 1970s, average incomes have grown, but the growth has not been uniform across the income distribution. The incomes at the top, especially in the top 1 per cent, have grown much faster than average. These high earners have made significant economic contributions, but they have also reaped large gains. The question for public policy is what, if anything, to do about it. "

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