Tuesday, December 8, 2015

On Archangels, eye makeup, cultural narcissism, and, y’know, stuff like that.

I’m sitting in my back yard, without a coat, without a sweater, listening to the rumble of lawnmowers on the morning of December 5th, 2015.  I should write a post about global warming, I guess, and this post may come to that in the end.

But something else has been on my mind overnight. 

No, not shooters in San Bernardino, or refugees from Syria, or walls along the border with Mexico either, although it may come to those too, in the end.  The list of things it may come to in the end is long. 

I’ve been thinking about the sublime voices of Goths.  Well, of a particular, modern Goth.

Ok, that’s obscure.  I’ll explain.  I’m sure this is some kind of deeply embarrassing sin.  But as long as you promise not to tell anyone, I guess I can confess.

Sometimes, following the crazy tangle of links down the right side of the YouTube screen, something about the picture that YouTube displays for one of the “got talent” performances catches my attention.  So I glance furtively around to be sure no one is looking, and then click on it.  I did that a day or two ago, and I found….

Andrew De Leon.  Yes, from 2012.  Since I only see these things on YouTube, and only when I chance on them, I’m always late to find them, and others are way ahead of me.  But if you’re not, if you haven’t heard this young man, take a few minutes and just listen.

Start at his first audition here.   Really:  you have to look at that first audition first, or the rest of the post will be confusing.  So go watch, I’ll wait.  Don’t be afraid.  His eyes may look like they have x-ray powers, but there is no great harm in them.  (At least I hope not.  Andrew, take note: if you actually do have x-ray powers, please use them only for good.)

Are you back?  Amazing, wasn’t it?  All of that from solitary practice in his room.  It is one more bit of evidence that there are exceptional things happening in well hidden places everywhere, things we can’t know about because the people doing them, for whatever reason, are keeping them close, keeping them from our sight.

Now watch Andrew in his semifinals.  I want to say up front that this is what can happen to a nice, cloistered young Goth when he’s exposed to the defiling influence of the outside world.  I want to say that, but I suspect this was in him from the start.  But you decide.  Go ahead, please: Here’s the link.  (Crank up the volume for this one…and full screen, too; much of what I reacted to was visual.)

Did you notice that last note, the last “Amen”, and his eyes as he finished and looked down at the judges?  At 1:38 in the video. 

I do understand that the quiet smile on his face is just a sense of blessed relief that he nailed the high notes, combined with a quick check to see what the judges thought.  But that look!   At that point, after that elegant, sweet, mesmerizing performance of a religious work, on that stage lit like a gothic cathedral, with spots like rays of holy sun transformed to gold or blue through a stained glass window, he looked like a portrait of a saint, or an angel (or maybe an archangel since parts of the lyrics of his song were originally provided by Gabriel).  At that instant those astonishing eyes looked as though they were seeing through the judge’s bodies and seeing their hearts and souls, and forgiving them in spite of that.  I am not religious; the opposite, if anything.  But at that instant, just for that instant, I felt a disturbing tremble in my disbelief; a kind of minor crisis in my lack-of-faith.  Andrew at that instant seemed to release his inner archangel.  How many of us ever have the courage, or the ability, to do that?  I was transported out of the drab world by his performance.

Simply awesome. 

It was a comment by one of the judges afterward that brought me back to ground again.  Sharon Osbourne---yes, Ozzy Osbourne’s wife---recommended that Mr. De Leon dispense with his Goth look so that he could be taken more seriously.  His look was too exotic for Ozzy Osbourne’s wife??  Really??  That’s a little weird.  But of course she didn’t say that, exactly: she took him seriously and she loved him from the start and said so.  And the audiences clearly loved him.  She meant that for the sake of his career he might need to be taken seriously by the rest of society, all of it, even by the more rigid subcultures in this land of the free that might dismiss him because of his appearance.   And I know why she had that fear for him.  We all know.  There is across the world, in every different place and time, a cultural arrogance, even in the smaller cultures, in regions or religions or classes or races, a subcultural arrogance, a sad, vulgar, coarsening subcultural narcissism, that wants to see in others exactly what we think we see in ourselves.  Sameness is comforting and undemanding.  Difference, on the other hand, is threatening, and there is an instinct to spurn and repel it. 

And that made me think of our national response to the Syrian refugees, and to all the refugees across the world that are desperate for help.  And it made me think that if we allow global warming to continue there may be many more refugees in future decades, refugees from hunger, disease, and yes, war, a wild assortment of them in all kinds of colors and religions.  We may even be among them, or some of us may.  There is precedent in this country for mass displacement by environmental disaster.  When was the last time you read The Grapes of Wrath?  (Hey, I did warn you up front that it might come to this in the end.)

But enough, for now, of that.   This day in the sunshine, in my back yard on the warming earth, is too nice to start down that road.  I’ll have to do it, but tomorrow, or the next day, or some day after that.  I’ll have to write a quick post explaining to all the Governors who are refusing the Syrian refugees, including my own state’s Governor Hogan, that it’s possible to see difference not as threatening, but as energizing. 

But for now, to Governor Hogan I will just say:

“Do not neglect to show hospitality to strangers for by doing that some have entertained angels without knowing it.”---Hebrews 13:1

And to Mr. De Leon I will say:  thanks for that radiant Ave Maria.  Stay Goth as long as you like; it looks good on you.  You labored on your voice alone in your cloistered room, and labored also on your look, and created your own excellent art in both efforts.  You created yourself.  From all appearances available to me in these two videos you did a damned fine job of it.  I think we can trust you to continue to create yourself in the future.

And to you readers, who now know my secret weakness, my embarrassing habit of YouTubing talent-shows, I’ll just quote the famous prayer of that other sinful hedonist Saint Augustine of Hippo: “Lord, grant me chastity and continence---but not yet”.

Monday, July 27, 2015

Greece off the grid and other Greek stories

There were small craft warnings out on the Chesapeake yesterday, so of course I went sailing.   No rain, no storms, just sun, wind, and a field of whitecaps all across the bay through a long afternoon.  On a day like that, though, in small craft warnings, in wind creating waves up the whole fetch of the Chesapeake, sailing is, let’s say, not entirely a passive experience, so I’m a bit stiff this morning.  And I was awakened this morning at a crazy early hour by thunder and a brief but energetic rain.  So I’m not out walking or running, or any of those things I keep trying to do to keep from aging too fast. 

Which means I’m sitting idly on my couch at 6:13 AM, wondering what to do with myself. 

I guess I have a few minutes to write.  So I might as well say something about what I thought was the most interesting piece in yesterday’s Washington Post: it was on the Sunday Opinion page, at the bottom, but it wasn’t exactly opinion.  It was simply an observation.  In the print version it was titled “Greece’s invisible economy”, but online it seems to be titled “Lessons in resiliance from rural Greece”.  In it, Alexis Adams, a resident of Red Lodge, Montana (but also apparently a resident of Leonidion, Greece), described a side of the Greek economy that will be largely undisturbed by the negotiations with Europe, or with the IMF, or with a change from the Euro to the Drachma, or the New Drachma, or as Mr. Adams points out, to the Obol, which was the Greek currency 2500 years ago.  As you might have guessed, he was describing the traditional lives of rural Greeks, where “traditional” is a condition established over centuries, or even millenia.

Here’s a snippet from Mr. Adams’ piece:

my neighbors in rural Greece carry on with their lives as they have for centuries. Invisible to most economists, they subsist in ways that cannot be measured easily by typical economic yardsticks. Nonetheless, their economy is real, will help them survive the current crisis”

His whole story, but particularly this quote, reminded me about something I’ve talked about here before (using Malala Cake as an excuse): GDP is a very rough estimate, and it very specifically does not include non-market activity.   It does not include household production of things.  So he’s probably right that the Greek GDP measures includes very little of the economic activity of Mr. Adams’ neighbors.  They grow their own food, make their own cloth, and raise sheep and goats that provide them with milk and cheese and meat.  Since these things are not bought or sold in markets, they do not appear in the GDP.  But they are, without question, economic activity of the most basic kind. 

And Mr. Adams declares that 39% of the Greek population lives like this.

The official measure of the ratio Greek government debt to Greek GDP is up in the range of 170% these days, but Greece’s GDP is severely depressed.  It has declined by about 25% since 2008.  If the Greek GDP even returned just to its 2008 value, the debt-to-GDP ratio would decline to about 130% (very rough numbers).  But that doesn’t account for any possible growth in potential GDP for the last 7 years.  And if Mr. Adams’ data is right, it takes no account at all of much of the production of nearly 40% of the Greek population.

The other interesting comment on Greece yesterday, or perhaps the day before, was this column by Joseph Stiglitz, Nobel Laureate in Economics and former Chief Economist at the World Bank.  Prof. Stiglitz has an even more caustic view of the European agreements with Greece than I do.  He says:

“One underlying problem in Greece, in both its economy and its politics, is the role of a group of wealthy people who control key sectors, including banks and the media, collectively referred to as the Greek oligarchs.”


“The rationale behind many of the key structural reforms has not been explained well, either to the Greek public or to economists trying to understand them. In the absence of such an explanation, there is a widespread belief here in Greece that special interests, in and out of the country, are using the troika to get what they could not have obtained by more democratic processes.”


“…special interests in the rest of Europe and some within Greece itself have taken advantage of the troika to push their own interests at the expense of ordinary Greek citizens and the country’s overall economy…When a country is down, there is all manner of mischief that can be done.”

And he, like many others, is skeptical that the current agreement will work at all, unless there is a quick and substantial change in the strategy of the European Commission and the European Central Bank (the IMF has already changed its strategy proposals for the better).  The expanded austerity will do nothing but expand the Greek depression, which will, by the same kind of arithmetic I used above, drive the Greek GDP further down and the Greek debt-to-GDP ratio up.  And as increasing unemployment and inequality mount, so will resentment. 

At least for 60% of the Greek population.  The 40% that Mr. Adams has described will apparently simply continue their lives as they have through all the history that has washed over them and around them over the last millennium or two.

Monday, July 20, 2015

Disgust first. Then frustration.

Good lord. 

This has been in progress for a couple of days, and much of it is old news by now.  But I’ll record my own take on it anyway. 

Last Friday I wrote out a little frustration with Greece, expressing the daydream that maybe we could get Donald Trump out of our hair for a while by sending him to Greece to teach Tsipras how to negotiate.  That used to be something Trump had a reputation for doing well, and Tsipras, apparently, has no clue about what it even means.   But I waited to post what I wrote on the count-to-ten-first principle.  Then Saturday I was out all day teaching a sailing class on the Potomac, and was thoroughly tired and hot when I got home.  So I waited until yesterday morning to look at it again.


I’ll get back to Greece in a minute, but I have to follow a distraction from yesterday morning’s news first.   I’ll say this up front: Mr. Tipras, I withdraw my threat to inflict Donald Trump on you to teach you the art of negotiation.  No matter how good at it he is, it would not be honorable any more to inflict him on anyone, for any purpose.

Donald Trump was back on the front page of the Washington Post yesterday, and has been on all kinds of news since.  I supposed it’s good for his campaign in the very short run.  This time he declared that Senator John McCain is “not a war hero” on the grounds that McCain “was captured”.   Apparently heroes, to Trump, are people who don’t get captured.  That’s what he says, anyway.

Seriously??   Wow.  This on top of the florid ignorance he excreted on the topic of Mexico and our southern border.   And the idiocy of the “birther” episode.  And, and, and.  Yesterday morning’s mental oddity from him is minor, really, compared to his past exhibitions.  But it was, I guess, that final straw for me.  I can’t understand why the Post published this about him, or why anyone anywhere publishes anything about him.  He no longer seems to me to have public prospects, or even public interest.

For the record, I don’t have any problem with Trump when he disagrees with Senator McCain on issues; I often disagree with Senator McCain on issues, and I’m sure that he and I were in very substantial disagreement on many issues in the sixties, when he was a POW in Vietnam.  But go read the Wikipedia entry on his treatment as a prisoner, and how he responded to it.  He suffered terribly as a POW, through long years, with broken limbs, a shoulder crushed by a rifle butt, years of solitary confinement and daily beatings, and he showed honor, commitment and courage that was nothing short of astonishing.  He still shows honor and courage, working for his beliefs every long day with deep injuries from that time that have never completely healed, and can’t ever completely heal.  He was a hero, and he is a hero.  He is wrong, in my opinion, about many things.  But he is still a hero.

As a presidential candidate Trump is a caricature of everything; he’s a caricature of himself, of the tea party, of the Republican Party, of some smarmy, ugly sliver of America.  He’s a Rorschach test, a blot of ink splashed across the political world.  A clown, of course, and I have to agree with the new Huffington Post policy of reporting his antics in their Entertainment section, instead of in their Politics section.  The Washington Post, and every other reputable news source, should follow their lead.  And actually, I think they should go farther: don’t report on him at all.  What could he say by now that would actually be either news or entertainment?  Nothing.

I think Trump might even have thought, for a time, that he was really running for President.  But any such fantasy on his part should now be over.  He expresses the emotional responses of a small group of voters who will be avid for him, for a while.   But he has offended so many, and so severely, that I can’t imagine any general election where he could win any office at all, much less the office of the President and Commander in Chief.

Now on to Greece, the future, the negotiations with Europe, and anything, however dismal, that does not include Donald Trump.

So here’s my question:

What on earth could Tsipras have been thinking when he went into the negotiations with Europe asserting that he had not been authorized by his voters to exit the Euro?  What, then, were the negotiations about?  What did he have to offer, or to threaten if it came to that?  He simply threw himself on their mercy, and when that was lacking he submitted all of Greece to a spanking.

Here are the basics, Alexis.  May I call you Alexis?  The fixation of the rest of Europe was this: how do we make Greece behave, how do we hold their feet to the fire, make them pay their debts and push their budget even further into primary surplus, how do we push Greece to fiscal virtue no matter what the short term cost to them?  That’s what Merkel and all the rest walked into that room determined to do.  That was their goal.  Your task, the first day, was to change the topic of the negotiations.  Your task was to make the whole discussion about this: how do we, Europe, get Greece out of this depression, this catastrophe worse than the Great Depression of the 1930s?  Because that’s the kernel of the problem, isn’t it?  If the Greek depression disappeared, then Greece would be far more able to make the the payments on its debt.  If Greece could reach its potential GDP, then the budget would be in substantial primary surplus and the debt to GDP ratio would not look nearly as scary as it does.

And to do that, to change the topic, you had to make them believe that no agreement that did not achieve at least a hope for foreseeable, predictable, reliable Greek recovery could possibly be accepted.

I need to stress at this point that Greece does have internal problems that have to be fixed, period:  corruption has to stop, cronyism has to stop, the Greek people have to pay the taxes they owe, and so on.  And there are many things that could be changed to make your economy work better.  But you know that.  You don’t need Europe, or me, to tell you any of that.  You could offer those things in the negotiations, since you will have to do them anyway.  But more austerity, more grinding poverty, more depression, more insistence on paying back loans that can’t be repaid, are not among the things that will help Greece---or Europe either, for that matter.

And those last things were the topic that the rest of Europe walked into the room to discuss. 

How could you change the topic?  You had to make them understand that you had a ready alternative to their help, and that you were prepared---reluctantly, but still prepared---to use it, unless the negotiations could find a better way.

I know, easy in hindsight, and I do understand that Grexit would have been very hard.   Just the logistics of changing to a new currency would have been a nightmare.  And I know that the probability that you would have to exercise your Grexit option would have been far above zero; some in the negotiations seemed---and still seem---to welcome that idea. 

But now, now, with this “solution” in place, I feel the likelihood of eventual Grexit has done nothing but rise.  This “solution” is not a solution.  Not really.   It’s a thin patch on a blown tire, and an enduring grievance, and it is an engine driving Europe apart.

I understand, Alexis, what you meant to do.  You went to Europe with every faith in their good will.  You did depend on the goodness of Europe, which was wonderful of you, but naïve, perhaps, since everyone in the room was an elected politician who had to report back to the voters in their own countries.  They would loved to be good, but their first obligation was to their own constituents, not to you.  You let the conversation devolve to such a dismal state that the primary question seemed to be whether Europe could “trust” Greece.  Trust Greece to do what, for God’s sake?? Bend over and grab its ankles?  The right answer should have been: yes, you can trust Greece to do everything, everything, that is necessary for Greek recovery, and you can trust Greece to hope that is possible within the Euro: because we do hope for that.  In our deepest hearts we want that.  But we must emerge from economic cataclysm.  You, the rest of Europe, can choose to help, or can choose to stand aside.  The right answer should have been: please, help us, we would welcome that, we want that, and to survive as a common currency zone Europe must find a way to do that not just with Greece but with any member country that is in deep depression.  But if your minds or values or whatever is binding you can’t find a way to help us then it will not be left to you to decide whether you will stand aside.  Let’s find a path together, please; that is the path we want.  But if we can’t achieve that, if we in this room can’t find a way to work together, then Greece will take the only path remaining to it toward a credible, sustainable, growing future.

Here’s what you had to do---HAD to do, with no real alternative as a negotiation position:

You had to walk into the room, the first day, with Greek exit from the Euro all lined up, all prepared, planned in detail and ready to go.  You had to tell everyone in the room that Grexit was not desired, but it was prepared, that you could start printing Drachmas at a moment’s notice.  You had to tell them that you desperately wanted to be a part of the Euro zone, that you never, never wanted to start Greek exit, but that your number one priority was that depression in Greece had to be stopped one way or another.  That, you should have told them, was the only real topic of negotiation.   Then the negotiations would not be about how to make Greece behave, or even how to preserve the Euro, it would be about how to make Greece grow again, preserving the Euro whole if those two goals could be jointly achieved.  But in the order of importance, Greek recovery was first.

You had tell them this:  I know you, Europe, don’t want to delay the repayment of your loans, but you have no choice in this.  We, Greece, can’t repay those loans while we are in a deep depression: either you find a new loan structure that is viable, and that will help Greece, or Greece on its own will design that new loan structure and Greece will choose how to delay the payments.  Whether or not the loans will be delayed is not something that either Greece or her creditors have the power to decide.  History and years of austerity have taken this decision from all of our hands.  All we are talking about here is whether there is some way, some European way, to help a member state get out of depression and still remain in the Eurozone.  Any other topic is a useless waste of time: tell me now whether we can keep to the true topic, or let me leave and get started on the terrible task of exiting the Euro.

Yes, you should have said, under the current regime the European Central Bank can starve the banks in Greece.  But the moment these talks fall through, the moment it becomes clear that the ECB really does intend to starve the Greek banks, I can start printing Drachmas and Greece can provide our own banks with the liquidity they need. 

Yes, Greece has debts, and (you should have assured them) we intend to repay them.  But recovery is a prerequisite.  You can try to insist on the current loan schedule, if you like, and within the Euro that would drive Greece to the ground, and your insistence would turn to ashes; the loans as they stand are not sustainable.  You know that.  The IMF says so, in well-reasoned erudite papers.  We in Greece feel that truth every day.   The loans will be repaid when we can manage that.  We want Europe to have a way to help us, to find a way to help us get to recovery, so these loans can be repaid in full.  But if you can’t do that, if we in this room can’t find a European path, then Greece can finance its own recovery both with reasonable domestic spending and by depreciating the New Drachma against the Euro and the Dollar and everything else, to stimulate exports and provide new demand for our products. 

With that background, with the plan B in place, the plan and all the preparations in place, to leave the Euro, you might have been able to change the topic of negotiation from “how do we get those blasted Greeks to behave” to “how do we help Greece to recover, so that Greece can finally grow, prosper, and fulfill all its commitments within the Euro”.   You could have changed the topic because you could have told Merkel, Scheuble, and all the others in the room that they were not in charge of the negotiation.  No one is in charge of the residue of history.  The loans would be delayed and restructured because history had left no other option on the table.  Greece had a path to hope, had a path to growth, prosperity, and fulfillment of its commitments---a bit tardy, perhaps, but fulfillment still, by exiting the Euro.  Their job in the negotiating, given that, was to find a second path, a path within the Euro, to Greek prosperity.

You needed to walk into the room with that all in your back pocket, truly prepared, with the new Drachma all designed (possibly with the word OXI stamped all over it), the right counterfeit-defying paper on the rolls, the printing presses ready to go, and with the preparation in your heart to flip the switch and turn them all on.  You needed to do that because you wanted, and the Greek people want, to avoid flipping that switch, and changing the negotiating topic was your only real long run hope of doing that. 

But without agreement on a valid plan out of here, this crisis will happen again, and again, and again, as long as Greece and Europe keep reeling down this long divisive road.  And at every crisis, Grexit will rear its head.

I hope I’m wrong about that.  Of course I do.  Maybe it all will look better tomorrow, or the day after.  Maybe Europe, now that they have brought Greece to heel, will suddenly become her benefactor, with some kind of Marshal Plan for Greece.  But for now, I don’t see that.  For now, the current agreement seems unlikely to work, and has only made the situation worse.  I hope I’m wrong.  But for now, that’s the way it looks to me.

Tuesday, July 7, 2015


Greece!  Greece!  Everyone is commenting on Greece, including many of my favorite bloggers: Paul Krugman, Jared Bernstein, Brad DeLong---but as brilliant as they are, they are not the right place to go on this.  With respect to Greece, read Steve Randy Waldman.   He says many of the things I meant to say, but didn’t, and several things I never thought of, or didn’t know.   Here’s a quote from Waldman to tantalize you before I move on:

It is difficult to overstate how deeply Europe’s leaders betrayed the ideals of European integration in their handling of the Greek crisis. The first and most fundamental goal of European integration was to blur the lines of national feeling and interest through commerce and interdependence, in order to prevent the fractures along ethnonational lines that made a charnel house of the continent, twice. That is the first thing, the main rule, that anyone who claims to represent the European project must abide: We solve problems as Europeans together, not as nations in conflict.”

Read his whole post, which is full of detail and insight. 

There are a couple of things I want to add to what Waldman said in his post. 

My first point to add: there are leaders in Europe who complain that the European taxpayers should not be expected to pay Greek debt.  The problem with this complaint is that the European taxpayers will not need to pay the Greek debt any more than they already have.  At this point acquiring Greek debt by other European taxpayers is a sunk cost; the question is how to best protect those taxpayers’ future interests.  The choice before them now is to accept reduced and extended loan repayments with Greece inside the Euro, or accept those same reductions and extensions with Greece outside the Euro. 

Yes, much of the Greek debt is now owned by other European governments or the European Central Bank rather than by private banks, although whether that first “bailout” was to aid the Greeks or the banks is a matter of interpretation.  Here’s what Waldman says about that (echoing many others from 2010 onward, but I think Waldman says it better):

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.”

 And to bail out “mostly French and German banks”, the French and the German governments put up the largest chunks of the bailout money, so they now own the largest chunks of the Greek debt.   But does anyone really think that tax rates in Germany or France will rise if Greece delays repayment of its debts to those governments?  Or even if the debts are completely written off?  The governments of those countries might experience some frustration, but their taxpayers would not notice any change in their lives at all.

A chunk of the Greek debt is still privately owned.  So to the private banks and the wealthy private creditors who still own Greek bonds, I would say: you bought Greek bonds because they offered the highest yield you could find.   The reason the yield was that high was that the bonds were risky, of course.  You knew they were risky.  But for whatever reason, whether you rationally believed the risk was less than the interest rate implied or you were irrationally reaching for yield out of desperation, you bought them.  Well, sometimes taking those high-yield risks works out for you.   But the meaning of the word “risk” is that sometimes it doesn’t.  Suck it up.

 On to my second point: everyone is saying that Greece will face some kind of disaster if they leave the Euro.  My question is: compared to what??? 

Economically, Greece is a massive disaster right now, and with the deals offered by the rest of Europe, will remain a disaster far, far into the future.   Europe is offering Greece a future without hope.  A separation from the Euro and a return to the Drachma might be harsh, chaotic, at times possibly miserable, but at least it has a long-run positive buried in it somewhere: that the Drachma could devalue and make Greece’s exports cheaper and more attractive in the rest of the world, so there could be the long-run hope, at least, of an export-led recovery. 

But continue on the current path?  The Greek banks are already closed, or nearly so.  And here’s a graph that’s been wandering the internet, comparing Greece in the last few years (blue line) to America during the Great Depression (red line).  (I found it here, chart 4): 

If there is another turn of the screws of austerity, as Europe has until now demanded, that blue line will very likely turn even further down, or stay down even longer, or both, with no distant clear prospect that looks like hope.   What is going to create a recovery in that scenario?  Yes, I know, nothing lasts forever, so I assume that eventually things would change, possibly even for the better.  But there’s no obvious process that improves anything anytime soon.

Here’s another graph that I found here:

This charts the downturns during the recent recession in other European countries against the downturn in Greece; the dark blue line at the very bottom, of course, is Greece.  In each case, the GDP is plotted as a percent of that country’s GDP in 2008, which is the white dot on the 100% line.

The Greeks are exhausted by depression, sensibly fed up with austerity, and definitely fed up with haughty condescension from the rest of Europe.  Yes, the various Greek governments since the late nineteen seventies have helped create their own problems, with decades of corruption, political nepotism, and even cooking the books.  But the Greek people didn’t do that, and it’s the Greek people who are now living through a depression with no end. 

What is happening now, to Greece, seems to me to be exactly the opposite of what the financial system is supposed to do.  It’s supposed to allocate money from those who have it to those who can best use it, who can use it, that is, for the best interest of the general economy.  It’s supposed to help the economy, improve the economy.  What is happening now is that the European financial system is sabotaging the nation of Greece, systematically destroying the Greek economy, and crippling generations of Greek people. 

What should happen now?  I don’t know, precisely: but whatever is done should offer hope to the people of Greece.  Not the harsh Austerian hope that says someday, if you only believe, things will get better by magic.  And not the moralizing threat that if they don’t pay up the European austerity enforcer, the Confidence Fairy, will smite them in her terrible wrath.  No, it has to offer real hope, in a reasonable time.  

This is what has to be understood by Greece’s European creditors: any deal they offer has to contain more hope, and better long run prospects for Greece, than Grexit does.  Otherwise why should Greece accept it?

Saturday, June 27, 2015

A long, late comment about that Omega point….

One of the problems with working all day and only writing here at odd moments in the evening, when I have energy and inspiration, is that I’m always late to every good party.  The Omega point discussion I want to write about is already very old news; it was on and over weeks ago, which is a few long epochs ago in interweb time.  But there were things about the whole conversation that enchanted me, and others that bothered me, so I might as well write those things down.

So here it is: a few interweb epochs ago there was an exchange of bewilderment between Martin Feldstein and Paul Krugman.  Feldstein was bewildered by the fact that the Fed’s flood of new money in the last few years has not yet created the corresponding flood of inflation or even the long run expectation of inflation that he (and many others) predicted, based on something like a quantity theory of money (“inflation is too much money chasing too few goods”).   And Krugman was bewildered by the fact that Feldstein was bewildered, since stable prices when interest rates are at the zero lower bound and the “natural, full-employment” interest rate would be much lower than zero is what HE predicted, based on something like the old Keynesian or Hicksian IS-LM liquidity-trap model.  

The contesting bewilderments between these two very smart economists does raise a question: why does it exist so strongly when both of them based their predictions and bewilderment on well known, widely taught economic theory?  Neither was dealing, I think, with any theory that the other did not completely understand and, in one way or another, even accept.

Then a few weeks ago Brad DeLong suggested an answer: what you predict depends on how far into the future you think the Omega point is, and how strong you think its influence is on the what is happening now.  

The Omega point??  I didn’t recognize that from my Econ 101 text.  I had to look it up.  If you feel up to an excursion into entropy and evolution and cosmology and the nature of time and God, follow the link to Pierre Teilhard de Chardin, But for now, let’s just say that the word that DeLong used may be non-standard in economics, but the idea is strong in the economic imagination: the point DeLong is talking about is an ideal, theoretical condition out there in the temporal distance that is pulling at us, tugging us toward it.   It is final result of all that is happening now, the time when all economic discord and turbulence will cease, when prices and wages all have adjusted, and the thing that people in the econ biz call the velocity of money will have stopped gyrating all over the place, and will have settled wherever it is supposed to be.  DeLong even says this directly; he says:

At that time the money multiplier will be a reasonable and a reasonably stable value. At that time the velocity of money will be a reasonable and a reasonably stable value. … And at that time the price level will be proportional to the monetary base.”

Assuming that nothing else happens to knock us off our course---no new crises, no earthquakes or tsunamis or plagues, no major wars, no long-simmering industries suddenly bursting  out and changing the world, no fundamental political changes that bend some cost curve up or down or sideways, no new bubbles or panics or manias, no out-of-the-blue, irrational desolation or exuberance---assuming that we are left alone to move where our current Omega point lures us, it is the point at which we will settle in the end.  It is, finally, the Fabled Economic Long Run.

And DeLong’s post starts by repeating the last phrase of the famous quote from John Maynard Keynes, in which he states that “in the long run we are all dead”.  Keynes was complaining, long ago, about economists who constantly refer to the long run and tell us all to be patient while we get there.  Keynes said: “Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.” And in saying that, Keynes tells us that he thinks that when times are very hard or very turbulent, whenever, that is, people or politicians might turn to economic theorists hoping they might at last be of some real use, precisely at those times something very basic has pushed us far from long run equilibrium, and the Omega point might at exactly those times have raced far, far ahead of us into the distant future.  In fact (I think he might be saying) we are in a hard and turbulent time because the Omega point has raced ahead, and because there are barriers of some kind between it and us, and because it will be hard to get to it.  If it were easy to get to and there were no barriers to keep us from it we would be in it already, and the ocean would already be flat.  At times like that, he’s saying, the Omega-point-long-run is often so far off that it’s not a proper subject for economic thought.  The proper thought during a storm at sea is not a daydream about how peaceful it will be when the storm is over.  That may be tempting, but it’s not useful.  There’s a lot more practical value in thinking about how to survive the storm with as little damage as possible.

One possible response to that view is to deny that the long run can really move as far as that into the future, but DeLong (along with most economists these days, I hope) has seen enough of reality to know that it does not look like that.  Another response, the one DeLong describes in his post, is this: the Omega point may be far away but it is still very powerful.  It may not even exist anywhere but in the imagination of economists and economic actors (like bankers or businessmen or workers or consumers). But the imagined Omega point changes their---our--- current behavior.  A whimsical analogy: it may seem serene sitting on the level sand in the top of an hourglass, but you know how an hourglass works.  If you were sitting there on that sand you would know that deep beneath you is motion and drift, and that soon you would feel it, soon you would have to react, soon serenity would dissolve and you would be pulled through the vortex to the Omega point below.  And knowing that, you might react immediately to prepare, even though the sand you now sit on seems placid. 

Of course it’s common, and has been since somewhere around 1950 or so, to see the short run as Keynesian, and the long run as classical, and where you sit on the spectrum of ideology may depend on, or may determine, which of those two models you find most immediately useful, and on when you think the long run will arrive.   But DeLong, I think, was saying it depends also, or also determines, how you think the short run becomes long.   He paints a vivid picture of a “backward propagation” of behavior that is caused by our awareness of the distant Omega point, and how that might create a quick, even nearly immediate, economic response to large rises in the money supply, since current economic actors would feel in their bones that someday, as the Omega point nears, that increase in money would create inflationary pressure.  They would feel in their bones that because of how they believe the economy works there is already motion and drift beneath them, invisible, but there, and they would begin to prepare for the vortex they know is coming.   Because inflation, the Quantity Theory tells us, is always and everywhere a monetary phenomenon.  And because economic actors, even though they may not understand it on a theoretical level, on a mathematical level, are nevertheless saturated with a devout faith in the Quantity Theory.

As DeLong says this idea explains why economists with the same theories might differ in their beliefs even about what the near future holds:

“…beliefs in 2008 and 2009 that economies’ stays in liquidity traps would be very short…and beliefs since then that those who believe will not taste death before, but will live to see exit from the liquidity trap and an outburst of inflation as the Federal Reserve tries and fails at the impossible task of shrinking its balance sheet to normal without inflation–all of these beliefs hinged and hinge on a firm and faithful expectation that this long run is at hand, or is near, or will soon draw near…

“Back in late 2009 I thought that the liquidity-trap short run was likely to be a three-to-five-year phenomenon. It has now been six….The duration of the short run thus looks to me to be, this time, not three to five years but more like ten. Or more. The backward-propagation of the induction-unraveling of the short run under pressure of the healing rays of the long run Omega Point is not just not as strong as Marty Feldstein thought, is not just not as strong as I thought, it is nearly non-existent.”

But to me this does not seem like a surprise. 

I’m not surprised by it partly because I’m pretty ambivalent about the quantity theory of money even as a long run concept, but partly also because I’m still back there with Keynes: when the Omega point is really distant, and the transition to it looks like it’s difficult and uncertain, it is very probably so far away that we will never get there at all.   At least one thing, a tsunami or a new industry or a bout of irrational exuberance or depression, one thing at least will happen to us long before we reach that Omega point, and whatever it is will create a new storm on our ocean, and will shift the Omega point to some new position.  Something will turn the hourglass upside down or knock it on its side, or tumble it end over end down a hill, or break the glass that forms it, or something, and preparing to whirl through the vortex to an imagined Omega point beneath us will do us no good when we’re sitting under a torrent of sand dropping on our heads from above, trying to bury us. 

How likely is it that something will happen to interrupt our trip to the Fabled Economic Long Run?  How stable and certain is the Omega point?  My own view is that unless the Omega point really is “at hand, or near, or will soon draw near”, it’s not very certain at all.  And what’s worse, it’s not uncertain in a way that’s easy to handle: it’s not just subject to some random variation around a long run expected value.  It’s not stochastic.  It’s unknown.   We can prepare for it by gaining strengths that will be useful no matter what the future is.  But we can’t rationally forecast it with a formula.

One example of this that I’ve used often is the World-Wide Web: in 1989 we could not possibly have predicted the dot-com bubble of just a few years later, because there was no dot-com start-up in existence in 1989.  The Internet existed---the capability of sending data between computers.  But there was no HTML, no JAVA, no Visual Basic; there was no such thing as a web app.  There were none of the basic building blocks of modern e-commerce beyond the existence of the network itself.   The creation of the real World Wide Web changed the way business was done, and left any prior vision of a long run Omega point that we might have had in 1989 floundering in the dust.

But that’s a one-time event, right?  Surely that kind of thing doesn’t happen all the time; surely our longer run expectations are more secure in “ordinary” times than they were at that point, on the cusp of a transforming technology, before the first wave of a new and transforming industry.  Right?

Let’s go back through a few decades to see what might have changed the Omega point in each of them.  I’ll mention just what comes quickly to my mind, which means I’ll leave out a vast number of important things that don’t, and I don’t doubt that you’ll experience some frustration with my lists because I’ll leave out the very things that you think were most important.  So just regard my lists as a start, as scratch lists, and feel free to add to them.

Imagine yourself not in 1989 but in 1999 trying to look at the long run, the Omega point over the next decade.  What would you have forecast?

In the following decade, the 2000s, we had two new wars sucking away our national wealth, and the horrific events that preceded those wars.  We had a Presidential election contested up to---and some say decided by---the Supreme Court.  We had the Bush tax cuts early on, an immense housing bubble through much of the middle of the decade, and then the largest financial crisis since the great depression.  We had the Tea Party, sequesters and fiscal cliffs.  On the up side, the iPhone and iPad and all of their competitors hit the market, creating an industry that is still expanding, and after that we not only could order things from abstract stores without walls, we could do it from our hand held computers (our phones) while we sat on a park bench.   Industry insiders may have expected each of those things, but most of us did not.  YouTube, Facebook and Twitter all were founded and blossomed; and even industry insiders did not expect those, because there were no industry insiders in the new industry of social media.  SpaceX was founded in 2002. In 2000 the Federal budget ran a significant surplus…remember that?  Which the CBO projected would continue through the decade and wipe out the Federal debt.   Alan Greenspan, the Ayn Rand acolyte and fiscally conservative Chairman of the Fed, went before Congress to warn them that the budget surplus was far too big, that we were paying off the national debt so fast that it was dangerous to our economic well being, and he then begged Congress to be more fiscally profligate.  Mid-decade we had Hurricane Katrina that trashed New Orleans; in 2010 we had an earthquake that devastated Haiti.  In 2004 there was a tsunami that pushed the Indian Ocean well inland across much of Southeast Asia.  Oh…and of course, a Republican President requested, and Congress enacted, a $700 billion bank bailout, an amount that at the time seemed almost inconceivably huge, and in quick succession after that we elected the first black President in US history, and the new President asked for and received from Congress a $787 billion economic stimulus bill on top of the bank bailout.  He also proposed, and Congress passed, a national health care bill that drove the Republican party to such frothy-lipped distraction that it would repeatedly bring the whole country to the brink of fiscal default by refusing to raise the ceiling on the debt that the CBO, at the start of the decade, had thought would shrink until it vanished. 

How much of that did you predict in 1999?

For the 1990s we’ve already mentioned the emergence of the World Wide Web and the dot-com bubble.  Amazon was founded in 1994.   Web TV, Java, Google, and the first Gulf war.  Clinton was impeached by the House, and then acquitted by the Senate.   The Los Angeles riots in 1992. Did you predict all of that in 1989?  Do you want to argue that those things had no impact on the long run Omega point?

For the 1980s we can point to the emergence of personal computers as a major industry; it had really started in the 1970s, but IBM took it to the big time with the first IBM PC in 1981.  Those of you who are very young can’t begin to understand what a radical transformation that was.  MS Dos emerged; the Apple Macintosh was marketed with the famous Super Bowl ad.  At the end of the seventies there was a widespread fear that rapid inflation was built in to the system in a wage-price spiral, but a deep Fed-induced recession in the very early years of the 1980s killed inflation expectations by driving interest rates through the roof.  Then we had “morning again in America” in the middle years, as soon as the Fed allowed it, and recession again at the end.  In 1982 Israel invaded Lebanon.  Reagan fired 13,000 air traffic controllers, which reputedly so damaged the labor unions in the United States that they have not really recovered since.  Again, those of you who are too young to remember how things were before that event won’t really understand how transforming that act was, and how much it changed the economy we live in.  Congress, with Reagan strong encouragement, reduced the top tax rate from 70% in 1979 to, for a time, 28% in 1986.  Iran-Contra.  Nicaragua.  Oliver North sneaking secret documents out of the OEOB in his secretary’s undergarments, and his potted plant defending him at Congressional hearings.

Back another decade: what would you have predicted looking forward from 1969?  The 1970s ended the Vietnam War in somewhat chaotic fashion; President Richard Nixon was impeached and resigned; in 1973 OPEC imposed an oil embargo that sacked the US economy in many ways.  A Republican President imposed Wage and Price Controls, an almost Marxist intrusion of federal fingers into the operations of private markets.  Crude oil prices rose from under $2 per barrel in 1970 to over $36 per barrel in 1980. $36 per barrel may sound cheap by modern standards, but think what an18-fold increase in the price of oil from its current level would do to our economy now---from the current roughly $60 per barrel to over $1000 per barrel.  Think about that. Do you think that would have no impact on our long run expectations?  Other seventies events: Apple computers, Atari computers, Visicalc,  Ethernet and TCP/IP.  Floppy disks, microprocessors, videocassette recorders, LCD screens.  Word processors.  Pong and the beginning of computer gaming.

Looking forward from 1959?  In the sixties: lord---do we really have to do the sixties???  The riots, the civil rights movement, the anti-war movement---the Vietnam War itself?  The whole suite of New Frontier and Great Society programs, including Medicare and Medicaid?   Leaving the planet Earth, for the first time in history: we had barely left the atmosphere at the beginning of the decade, and by the end we had landed men on the moon.   The event itself has not yet impacted any Omega point, but the process of getting there surely did.  The Civil Rights Act, the Voting Rights Act.  The assassinations of John Kennedy, Robert Kennedy, Martin Luther King, Malcolm X, the Birmingham church bombing, Medger Evers, Chaney, Goodman and Schwerner.  Woodstock and Altemont. 

And the fifties: the Interstate Highway System, the Korean war, the invention of the credit card, radial tires and the transistor radio, Cobol, Fortran and, of course, the births of Barbie and Mr. Potato Head.  Sputnik and the start of the space race.  The House Un-American Activities Committee, and McCarthy in the Senate. 

Forties:  Nazism, Pearl Harbor and all of WWII, the Marshall Plan, the entire south walking out of the Democratic National Convention and forming their own separate States Rights Democratic party.  The beginning of the Cold War.

Thirties: New Deal, WPA, Great Depression, Social Security, the dust bowl, Hoover Dam, the Rural Electrification Administration and the Tennessee Valley Authority, and the publication of Keynes’ General Theory, which created modern macroeconomics, and also created a schism in the economic world that we have not yet resolved.

The point of all this is that if the Omega point is not too far away---if we’re fairly close to long run equilibrium---then its fire will warm us, and we will all react to it, and do our best to prepare for it.  If it’s close it’s powerful on its own as our “long run” destination, but also powerfully affects our short-run behavior, because we really believe in it, we can feel it.  But the farther it is in the future the less likely it is that we will ever get to whatever Omega point is pulling at us. It’s still a valid abstraction.   It is still the direction that the economic fundamentals are now moving us, in some sense.  But if the Omega point is a decade away, if too much has to happen to get us from here to there, then the odds are that a great deal of turbulence will intervene between now and that long run, and by the time it really could be at hand, or near, or soon draw near, by that time the Omega point that pulls at us will not be the one we see now.  By that time the Omega point will have moved to a very different place.  And I think most people can see that, and react as though they can see it.  The distant Omega point does not warm us.  It’s like a fire in another room, or even in another house. 

One quick word about the Quantity Theory and the money supply, and I’ll stop.  There seems to be a great deal of panic in some circles that the Fed has quadrupled the quantity of base money in the years since 2007.  That is the source of Dr. Feldstein’s original bewilderment and DeLong’s comment about the price level being proportional to the monetary base when we at last reach the Omega point.  But lost in this panic is the fact that the monetary base is never stationary: it doubles about every 10 years to accommodate a rising nominal GDP, and has been doing that for many decades.  Yes, the base money supply has quadrupled from its level at the close of 2007, but it’s already been 8 years since then.  The Fed will have to be alert, yes, and be ready to draw that supply down if it becomes necessary.  But as time goes on the amount that will have to be drawn down dwindles.  At that time, the Omega point time that DeLong sees in the future, the Fed’s scramble to “shrink its balance sheet to normal” may not seem impossible at all.  If the Omega point is 12 more years away, the Fed has already accomplished the task: all it has to do is stop expanding, which, in fact, it is doing.  The base money supply has held more or less steady for the last year.

Here’s the truth: the ocean is never ever flat.  There are calmer times and more turbulent times, but it’s never flat.  Even if the general economic models, the Keynesian short run and the classical long run, all capture real trends in our economic lives, and point to some economic destination that results from our policy choices, we can’t believe that ordinary economic actors will rationally treat that long run single-point destination as inevitable.  In fact, to turn that phrase backwards, we can’t think that it would be rational for them to think of it as inevitable, particularly when the process of getting there will take time, and has to leap a few hurdles.  Because, to abuse a phrase, the Omega point is just one damned thing, while real-world economies are one damned thing after another.