1
Opinion
Banishing Congo's Ghosts
Keeping a Band-Aid on Congo's festering wounds costs more in lives and money than taking resolute action."This pattern can only be broken if the West begins to demand performance from the corrupt and atrophied Congolese state itself. This will require as much discipline from donors as it does from the recipients. Money must gradually be moved away from annual dollops of life support to longer-term plans for real development, with binding expectations and benchmarks."
Howard W. French has only skimmed the history.
2
Business Day
A Rising Appetite to Invest in Colored Diamonds
Soaring prices reflect the desire of wealthy investors to diversify their portfolios with tangible assets as a hedge against volatile equity markets."De Beers is a cartel of companies that dominate the diamond, diamond mining, diamond hops, diamond trading and industrial diamond manufacturing sectors. De Beers is active in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea.[2] Mining takes place in Botswana, Namibia, South Africa and Canada.
The company was founded in 1888 by Cecil Rhodes, who was financed by South African diamond magnate Alfred Beit and the London-based N M Rothschild & Sons bank.[3] In 1927, Ernest Oppenheimer, a German immigrant to Britain who had earlier founded mining giant Anglo American plc with American financier J.P. Morgan,[4] took over De Beers. He built and consolidated the company's global monopoly over the diamond industry until his retirement. During this time, he was involved in a number of controversies, including price fixing, antitrust behaviour and an allegation of not releasing industrial diamonds for the US war effort during World War II."
I will buy you your choice of stones.
$84,000,000 is beyond my abilities.
4
World
Dozens Are Killed in Iraq Bombings
Officials said that 44 people were killed and over 100 were hurt in explosions — some set off by suicide bombers — that targeted public spaces and security checkpoints.
5
U.S.
Tribe Claims Approval for Martha’s Vineyard Casino, Reviving Fight
State and local governments have maintained that the tribe, the Wampanoag Tribe of Gay Head (Aquinnah), forfeited its right to build a casino on the Vineyard in the 1980s when it agreed to a land settlement.
6
Technology
Jury to Decide How Much More Samsung Must Pay Apple in Patent Case
A new trial expected to start this week will determine how much Samsung has to pay for an important suit it lost.
7
World
Defection of Longtime Ally Splits Center-Right in Italy
The rupture within the movement of Silvio Berlusconi was led by his longtime protégé, who announced he would refuse to join Mr. Berlusconi’s rebranded party.
Defectors (Political); Legislatures and Parliaments
Europe must either give up the Euro or inflate the Euro.
As things stand depression or revolution is the future.
Krugman:
320 Comments
Red Baron Larry Summers!
OK, with professional jealousy out of the way, let me try to enlarge on Larry’s theme.
1. When prudence is folly
Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.
And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.
This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.
Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future. That last bit is an important qualification. But suppose that U.S. corporations, which are currently sitting on a huge hoard of cash, were somehow to become convinced that it would be a great idea to fit out all their employees as cyborgs, with Google Glass and smart wristwatches everywhere. And suppose that three years later they realized that there wasn’t really much payoff to all that spending. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.
OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process.
But now comes the radical part of Larry’s presentation: his suggestion that this may not be a temporary state of affairs.
2. An economy that needs bubbles?
We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.
So you might be tempted to say that monetary policy has consistently been too loose. After all, haven’t low interest rates been encouraging repeated bubbles?
But as Larry emphasizes, there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation? Where has the overheated economy been visible?
So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.
One way to quantify this is, I think, to look at household debt. Here’s the ratio of household debt to GDP since the 50s:
Ratio of household debt to GDP
There was a sharp increase in the ratio after World War II, but from a
low base, as families moved to the suburbs and all that. Then there
were about 25 years of rough stability, from 1960 to around 1985. After
that, however, household debt rose rapidly and inexorably, until the
crisis struck.
So with all that household borrowing, you might have expected the period 1985-2007 to be one of strong inflationary pressure, high interest rates, or both. In fact, you see neither – this was the era of the Great Moderation, a time of low inflation and generally low interest rates. Without all that increase in household debt, interest rates would presumably have to have been considerably lower – maybe negative. In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.
And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.
3. Secular stagnation?
How did this happen? Larry explicitly invokes the notion of secular stagnation, associated in particular with Alvin Hansen (pdf). He doesn’t say why this might be happening to us now, but it’s not hard to think of possible reasons.
Back in the day, Hansen stressed demographic factors: he thought slowing population growth would mean low investment demand. Then came the baby boom. But this time around the slowdown is here, and looks real.
Think of it this way: during the period 1960-85, when the U.S. economy seemed able to achieve full employment without bubbles, our labor force grew an average 2.1 percent annually. In part this reflected the maturing of the baby boomers, in part the move of women into the labor force.
This growth made sustaining investment fairly easy: the business of providing Americans with new houses, new offices, and so on easily absorbed a fairly high fraction of GDP.
Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.
By the way, in a Samuelson consumption-loan model, the natural rate of interest equals the rate of population growth. Reality is a lot more complicated than that, but I don’t think it’s foolish to guess that the decline in population growth has reduced the natural real rate of interest by something like an equal amount (and to note that Japan’s shrinking working-age population is probably a major factor in its secular stagnation.)
There may be other factors – a Bob Gordonesque decline in innovation, etc.. The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit.
4. Destructive virtue
If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.
Currently, even policymakers who are willing to concede that the liquidity trap makes nonsense of conventional notions of policy prudence are busy preparing for the time when normality returns. This means that they are preoccupied with the idea that they must act now to head off future crises. Yet this crisis isn’t over – and as Larry says, “Most of what would be done under the aegis of preventing a future crisis would be counterproductive.”
He goes on to say that the officially respectable policy agenda involves “doing less with monetary policy than was done before and doing less with fiscal policy than was done before,” even though the economy remains deeply depressed. And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.
Amazing stuff – and if we really are looking at secular stagnation, he’s right.
Of course, the underlying problem in all of this is simply that real interest rates are too high. But, you say, they’re negative – zero nominal rates minus at least some expected inflation. To which the answer is, so? If the market wants a strongly negative real interest rate, we’ll have persistent problems until we find a way to deliver such a rate.
One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.
Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!
But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.
Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost.
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right."
Europe must either give up the Euro or inflate the Euro.
As things stand depression or revolution is the future.
Krugman:
320 Comments
Secular Stagnation, Coalmines, Bubbles, and Larry Summers
I’m pretty annoyed with Larry Summers right now. His presentation at the IMF Research Conference is, justifiably, getting a lot of attention. And here’s the thing: I’ve been thinking along the same lines, and have, I think, hinted at this analysis in various writings. But Larry’s formulation is much clearer and more forceful, and altogether better, than anything I’ve done. Curse you,OK, with professional jealousy out of the way, let me try to enlarge on Larry’s theme.
1. When prudence is folly
Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.
And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.
This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.
Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future. That last bit is an important qualification. But suppose that U.S. corporations, which are currently sitting on a huge hoard of cash, were somehow to become convinced that it would be a great idea to fit out all their employees as cyborgs, with Google Glass and smart wristwatches everywhere. And suppose that three years later they realized that there wasn’t really much payoff to all that spending. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.
OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process.
But now comes the radical part of Larry’s presentation: his suggestion that this may not be a temporary state of affairs.
2. An economy that needs bubbles?
We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.
So you might be tempted to say that monetary policy has consistently been too loose. After all, haven’t low interest rates been encouraging repeated bubbles?
But as Larry emphasizes, there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation? Where has the overheated economy been visible?
So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.
One way to quantify this is, I think, to look at household debt. Here’s the ratio of household debt to GDP since the 50s:
Ratio of household debt to GDPSo with all that household borrowing, you might have expected the period 1985-2007 to be one of strong inflationary pressure, high interest rates, or both. In fact, you see neither – this was the era of the Great Moderation, a time of low inflation and generally low interest rates. Without all that increase in household debt, interest rates would presumably have to have been considerably lower – maybe negative. In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.
And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.
3. Secular stagnation?
How did this happen? Larry explicitly invokes the notion of secular stagnation, associated in particular with Alvin Hansen (pdf). He doesn’t say why this might be happening to us now, but it’s not hard to think of possible reasons.
Back in the day, Hansen stressed demographic factors: he thought slowing population growth would mean low investment demand. Then came the baby boom. But this time around the slowdown is here, and looks real.
Think of it this way: during the period 1960-85, when the U.S. economy seemed able to achieve full employment without bubbles, our labor force grew an average 2.1 percent annually. In part this reflected the maturing of the baby boomers, in part the move of women into the labor force.
This growth made sustaining investment fairly easy: the business of providing Americans with new houses, new offices, and so on easily absorbed a fairly high fraction of GDP.
Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.
By the way, in a Samuelson consumption-loan model, the natural rate of interest equals the rate of population growth. Reality is a lot more complicated than that, but I don’t think it’s foolish to guess that the decline in population growth has reduced the natural real rate of interest by something like an equal amount (and to note that Japan’s shrinking working-age population is probably a major factor in its secular stagnation.)
There may be other factors – a Bob Gordonesque decline in innovation, etc.. The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit.
4. Destructive virtue
If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.
Currently, even policymakers who are willing to concede that the liquidity trap makes nonsense of conventional notions of policy prudence are busy preparing for the time when normality returns. This means that they are preoccupied with the idea that they must act now to head off future crises. Yet this crisis isn’t over – and as Larry says, “Most of what would be done under the aegis of preventing a future crisis would be counterproductive.”
He goes on to say that the officially respectable policy agenda involves “doing less with monetary policy than was done before and doing less with fiscal policy than was done before,” even though the economy remains deeply depressed. And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.
Amazing stuff – and if we really are looking at secular stagnation, he’s right.
Of course, the underlying problem in all of this is simply that real interest rates are too high. But, you say, they’re negative – zero nominal rates minus at least some expected inflation. To which the answer is, so? If the market wants a strongly negative real interest rate, we’ll have persistent problems until we find a way to deliver such a rate.
One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.
Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!
But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.
Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost.
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right."
8
T:Style
Food Matters | The Professional Women Who Hunt, Shoot and Gut Their Dinners
In Montana, the former investment banker Georgia Pellegrini offers a weekend retreat for urban women like herself to get in touch with their primitive selves.
9
World
Saul Kagan, Who Won Holocaust Restitution, Is Dead at 91
Mr. Kagan was the founding director of the Conference on Jewish Material Claims Against Germany, which sought reparations for the Nazi genocide against European Jews.
10
U.S.
Debating a New Pope, Faith and Doctrine
Some American Catholics in the church’s conservative wing say Pope Francis has left them feeling abandoned and deeply unsettled.
11
World
Spying Scandal Alters U.S. Ties With Allies and Raises Talk of Policy Shift
Revelations about the N.S.A. surveillance efforts in Europe are resulting in unprecedented backlash, and some wonder if it is more important to collect data on allies or to be able to work with them.
12
World
Greek Government Survives No-Confidence Vote
The opposition failed to gain support for its censure motion, but the coalition’s slim majority was reduced further after one legislator broke ranks.
13
U.S.
Boehner Rules Out Negotiations on Immigration
Speaker John A. Boehner said House Republicans had little interest in turning to immigration legislation that divided their party, and his stance meant the fight would be pushed into 2014.
14
World
U.S. Offers Reward in Wildlife-Trade Fight
In what officials said was the first time such a reward had been offered, the State Department said it was targeting a syndicate based in Laos.
15
World
9 Attackers and 2 Officers Reported Killed in Tense Western China
The assailants were shot dead Saturday night after they tried to storm a police station in the restive province of Xinjiang. Two police officers also died in the attack.
16
Technology
Disruptions: A Digital Underworld Cloaked in Anonymity
Silk Road, a vast Internet black market, stands as a tabloid monument to old-fashioned vice and new-fashioned technology.
17
N.Y. / Region
Kelly Attacks Mayoral Candidates for Criticizing Police Dept.
Police Commissioner Raymond W. Kelly, in an interview with Playboy magazine, said the candidates were “pandering” when they criticized the Police Department, particularly its stop-and-frisk tactics.It is time for Kelly to retire. He will soon be a private citizen.
18
World
Chinese Youth Sues Over Alleged Police Torture
After Yang Zhong, 16, was taken away by police on suspicion of “spreading online rumors,” he says they tortured him. Now he’s suing for 7 renminbi, one for each day of detention, and an apology.
19
N.Y. / Region
Verizon to Pay City for Cost Overruns
Verizon has agreed to pay New York City at least $50 million for falling behind schedule in developing software for the new 911 system that then failed to meet city standards.
20
N.Y. / Region
Census Shows Shift in New York's Population Dynamic After Recession
The city’s net outflow generally remains lower than it was before the recession began, and immigration has surged to nearly 10-year highs, according to new data from the Census Bureau.
Census; Immigration and Emigration; Population; Recession and Depression
I expect caution has little to do with exmigration.
Much more likely is a dearth of employment able to support middle class life.
A sad situation.
A good reason for "aging at home".
The deal is she stays in her house as long as she cares to stay.
His is the view that the police are an occupying force.
I am philosophically opposed to that view of policing.
More of the costs of cheap labor.
I expect caution has little to do with exmigration.
Much more likely is a dearth of employment able to support middle class life.
+++++++++++++++++++++++++++++++++++++++++++++++
@20:33
1
Health
Watchful Eye in Nursing Homes
Family members are turning to hidden cameras to help confirm suspected abuse in nursing homes, but their use raises legal and ethical questions about liability and privacy rights.A sad situation.
A good reason for "aging at home".
The deal is she stays in her house as long as she cares to stay.
2
Business Day
A Singapore Crew Cut to Get Past the Hair Police
Ole Henriksen is a skin cosmetician who manufactures of his own line of skin care products.
3
Health
Sleep Therapy Seen as an Aid for Depression
The first of four studies on the special relationship between sleep and depression suggests that when antidepressants and insomnia therapy are used together, recovery happens faster.
4
Science
Slowdown in Carbon Emissions Worldwide, but Coal Burning Continues to Grow
Experts said the world remains far from meeting international goals on climate change.
6
7
8
10
Ending the persecution of nonconforming populations is a continuing project.
16
"Anarch's legions all surround us"
http://www.christian-fandom.org/sf/dickson1.html
"Soldier, ask not - now, or ever,
Where to war your banners go.
Anarch's legions all surround us.
Strike - and do not count the blow!"
Where to war your banners go.
Anarch's legions all surround us.
Strike - and do not count the blow!"
http://en.wikipedia.org/wiki/Gordon_Dickson
17
N.Y. / Region
Kelly Attacks Mayoral Candidates for Criticizing Police Dept.
Police Commissioner Raymond W. Kelly, in an interview with Playboy magazine, said the candidates were “pandering” when they criticized the Police Department, particularly its stop-and-frisk tactics.His is the view that the police are an occupying force.
I am philosophically opposed to that view of policing.
18
World
Chinese Youth Sues Over Alleged Police Torture
After Yang Zhong, 16, was taken away by police on suspicion of “spreading online rumors,” he says they tortured him. Now he’s suing for 7 renminbi, one for each day of detention, and an apology.
20
N.Y. / Region
Census Shows Shift in New York's Population Dynamic After Recession
The city’s net outflow generally remains lower than it was before the recession began, and immigration has surged to nearly 10-year highs, according to new data from the Census Bureau.More of the costs of cheap labor.
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