BREAKING: Social Security Nothing Like Ponzi Scheme

Of course, rudimentary logic will never stop a crank.

[Mother Jones]

Ad Infinitum: Learn to [Drive]

A new survey asking American drivers to rate their own driving ability as well as others’ confirms that everyone is a special snowflake and that levels of self-awareness have either plummeted or not changed at all throughout human history.

American drivers believe their own driving knowledge, ability and safe driving habits are substantially superior to those of, well, just about all other American drivers. Nearly two-thirds (64 percent) of American drivers rate themselves as “excellent” or “very good” drivers. American drivers’ positive self-rating is more than twice as high as the rating they give to their own close friends (29 percent “excellent” or “very good”) and also other people their age (22 percent).

Turning Japanese

…, I think we’re turning Japanese, I really think so.

Karl Smith:

The 5 year TIPS rate crossed –1% today.

That means the government can make more money borrowing than the average person can by saving.

Earth Can Fit a Lot of People

Trantor, of Isaac Asimov’s Foundation series, is the seat of government in the Galactic Empire. It’s described as a preposterously dense city-planet home to some 40+ billion people, the pinnacle of human achievement in many ways. The planet is urbanized to such an extent that every inch of it is covered with man-made structure, for it’s necessary to accommodate all of these people. Moreover, it’s even urbanized under the surface with miles-deep tunneling that’s also packed with technological sophistication and activity. 

There’s a huge problem, though. Trantor is only slightly larger than Earth, and as such would only possess a population density of 600 people per square mile. That’s not very dense, and it definitely doesn’t require an entire planet being covered in skyscrapers and below-surface development.

This is all just a corny way of pointing out some lovely information by Per Square Mile that shows how much area the world’s population would require at varying levels of density. As you can see, if the entire population of the world lived in a single city at the Parisian level, we would all fit in a very small amount of space. Remember, that’s roughly 7 billion people all in an area less than the size of Texas. It’s also important to note that Paris has some relatively strict guidelines that new development must adhere to, including a height limit on buildings which restricts higher densities. 

Suffice it to say, the planet Earth can easily seat Trantor’s population, while still allowing for substantial greenery.

They got him a cake. It said “No” in pretty icing.

The Onion:

WASHINGTON—After months of heated negotiations and failed attempts to achieve any kind of consensus, President Obama turned 50 years old Thursday, drawing strong criticism from Republicans in Congress. “With the host of problems this country is currently facing, the fact that our president is devoting time to the human process of aging is an affront to Americans everywhere,” said Senate Minority Leader Mitch McConnell, who advocated a provision to keep Obama 49 at least through the fall of 2013. “To move forward unilaterally and simply begin the next year of his life without bipartisan support—is that any way to lead a country?” According to White House officials, Obama attempted to work with Republicans right up until the Aug. 4 deadline, but was ultimately left with no choice except to turn a year older.

Economy Update: Still Bad. Also, Semantics

It’s been a hell of a week, no? Congress overcame its impasse on the debt celing, agreeing to raise it in exchange for a multi-trillion dollar debt reduction package that amounts to nothing more than an incredibly ill-timed austerity plan. Oh, and it hardly puts a dent in our long-term fiscal imbalances, which are almost solely due to rising health care costs. Great job.

The stock market is way down. Not a big surprise there as chances of the world falling back into recession are as high as ever. Nonetheless, everyone is panicking.

Treasury real yield rates are still plummeting. That’s called People Paying You to Take Their Money.

Kenneth Rogoff has some complaints regarding the names we’ve designated to our recent troubles, mainly “The Great Recession”:

Why is everyone still referring to the recent financial crisis as the “Great Recession”? The term, after all, is predicated on a dangerous misdiagnosis of the problems that confront the United States and other countries, leading to bad forecasts and bad policy.

The phrase “Great Recession” creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

This, accompanied with recent news on the widening gap between yields on Italian/Spanish and German bonds, led to a crystallizing of something that had been bugging me over the past year: “The debt crisis” in Europe. Similar to Rogoff’s complaint, I find that this is sort of a mischaracterization. At least, it’s a mischaracterization on the level that is misinforms of the type of policy response required to solve it, also mentioned by Rogoff.

Here, we’re in a situation in which we’ve very badly confused cause and effect. The eurozone’s mess began the same as everyone else’s: a massive financial crisis that precipitated a plunge in consumer spending and an extended period of deleveraging, which continues. This sovereign-debt crisis wouldn’t actually be a thing without this antecedent, which has indefinitely suspended the prospect of reasonable future growth. This future growth is what’s needed to keep debt levels, as percentages of GDP, at reasonable levels and keep servicing costs manageable. However, policymakers at the European Central Bank have either conflated these or [insert something much more cynical].

Unfortunately, the cure to this is not really feasible within the context of current eurozone political dynamics.

Italy is one of the hot spots right now, so let’s use it as an example. Italy spends less on government services etc. than it receives in tax revenues, also known as a primary surplus—a pretty healthy situation. However, they still run a budget deficit when debt services (the interest paid on their outstanding debt) are accounted for. The solution to Italy’s problem is simple, and it’s the same as ours: very loose monetary policy and fiscal stimulus. But where Italy and the United States differ is hugely important; the United States can set its own monetary policy, and it can do so according to its own needs. Conversely, Italy cannot since it doesn’t have its own central bank. It has the ECB, which sets monetary policy for the entire eurozone, and, from what’s been witnessed over the course of the past three years, does so primarily in accordance with conditions in Germany. Unsurprisingly, economic conditions differ substantially between Germany and Italy, and thusly the ECB hasn’t undertook any efforts of easing or further interest rate lowering out of fear of incredibly modest inflation. But what Italy could really use right about now and in the near future is some inflation! A commitment to prolonged, modest inflation would increase economic activity in the short-term and consequently relieve Italy of its euro-inflicted “debt-problem”. Many smart people agree that this (the correct policy prescription) won’t happen, and as such, Italy will be forced to avoid a massive debt-spiral by drastically cutting spending, which only further depresses growth because it won’t be accompanied with lower interest rates as determined by the ECB. Lose-lose.

The short version of this is that the problems in Europe are a product of a massive financial crisis as well as poor fiscal integration between eurozone countries and one-size-fits-none monetary policy, rather than large quantities of debt. Just a typical, atypically extreme crisis. Not a debt crisis.

If Only It Really Was a Paul Krugman Presidency

Newt Gingrich, incessantly oblivious and painfully wrongheaded:

In fifty years, Paul Krugman’s writing on the Great Recession will be seminal. We would be in a much better place right now if the fiscal and monetary policies he has advocated over the past three years were in effect. Truly a disgusting display of ignorance.

One Graph to Rule Them All

This, from a couple weeks back by YouGov, does a fair job of explaining why policy leans to the right when Republicans are equipped with adequate leverage, and why we’re still staring down the barrel of self-inflicted economic doom. It’s too bad that adequate leverage is so easy to come by in our system.

7 days and counting…