"Policy Failure on a Massive Scale"

I'm about to head off on a blissful long weekend in the woods, and thank God. Civilization has been a real drag for the last little while. I've noticed that even the tone of even more usually reserved commentators has changed to hand-waving and yelling from the rooftops. Take Ryan Avent's post from yesterday on The Economist's Free Exchange blog, which pretty much sums up everything I feel about the situation right now:

"MAYBE everything will turn out all right. One shouldn't forget that possibility. As each day passes, however, frustration grows. Leaders in America and Europe are dallying with failure on an epic scale. They are constrained by dysfunctional institutions, it's true. In Europe, the architecture of the currency union is far too underdeveloped to weather a crisis of the current magnitude. In America, the creaking machinery of the legislature is ill suited to settlement of big questions on a short time frame amid divided government. But it's no longer sufficient to blame inadequate policy responses on institutions alone. America and Europe are flailing because their leaders are failing. They seem to be too small for the tasks at hand, too petty, and too myopic.

...

Again, it's not like the correct policy path is incredibly complicated. Here, I'll sum it up in three quick steps:

1. Don't cause a major crisis.
2. Do spend more and tax less for the next year or so.
3. Do spend less and tax more after that.

See? That's really easy!"

He's not kidding - it is really easy. Look, the New York Times has even laid out it for you in this awesome little interactive graph. Go ahead, time yourself: see how long it takes YOU to solve the deficit.

Have a lovely weekend. 

Recommended Debt Ceiling Reading

- James Surowiecki on why we should smash the debt ceiling.


- Why there was never going to be a surplus. A sample:
"Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do."


- If you haven't seen it already, this interview with Larry Summers is superb, and I found his contrast between working for Obama and Clinton very interesting.


- Oh look, here is Larry again!

Friends Don't Let Friends Publish Rambling Op-Eds

One of the reasons I'm back to blogging is that it is highly therapeutic; it provides me an outlet to vent when venting is a better alternative to hair-pulling, gnashing of teeth, wailing, or similar types of activities that annoy my co-workers deeply.


For instance, take today's op-ed in the FT by Alan Greenspan. Now, I'm not a compulsive, Krugman-esque Greenspan-basher like some (Paul Krugman, for instance). But I defy anyone to read this and come away with any understanding of what the former Federal Reserve Chairman is trying to say. Here's my effort:

1. Capital buffers have a cost as well as a benefit.
2. The general public are foolish sheep.
3. Private actors make risk decisions; public actors clean up the mess when they get it wrong.
4. Private actors got it wrong; financial calamity ensued.
5. Public actors, regrettably, intervened to clean up the mess; moral hazard ensued.
6. Sufficient capital buffers would, by definition, have prevented financial calamity and, by extension, the spike in moral hazard.
7. Public actors are therefore encouraging bigger capital buffers.
8. Bigger capital buffers are bad.
9. A debate will occur.

End.

-------

To step away from snarkiness for a moment, there are some very valid points in this piece (particularly about the negative side-effects of higher capital buffers on wealth creation). But taken as a whole, it is an incoherent mess. Not to mention his blithe disregard for the increasingly frequency of financial crises and the enormously negative wealth effects associated with those, too. I am left scratching my head at the FT editors who let this one slip through the cracks. 


Actually, on second thought, maybe they've deliberately done the world a service.

And Now Back To Our Regularly Scheduled Programming....

Let's face it: from a political economy point of view it is basically a blogger's wet dream out there right now: the Arab world just vom-chucked all over its autocrats, the Eurozone's leadership are engaged in a Guinness World Record-seeking attempt to kick the biggest can ever down the road and the political representatives of the United States are holding the global economy hostage while they debate whether they should pay for things they've already agreed to pay for. How can I resist? 

Intermission is over. Get back to your seats. 

Game on.