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Paragraphs to ponder, from Karl Smith. Although I've had this point explained to me many times, it never hurts to reflect upon how interconnected and, ultimately, fragile our socio-economic structure really is: 

"All things financial are ultimately promises.

Promises, however, matter. Ultimately they matter because promises are how we coordinate people to make stuff that is bigger and better than any one person could make alone. If we couldn’t make promises to each other we could never build factories, homes, cars, etc. In truth specialization would all but collapse and the modern economy would cease to function.

Many economists like to pretend that the economy functions on the basis of trade. The baker makes bread and trades with brewer who makes beer. But, this isn’t how the real world works is it? The real world is full of promises.

When the baker wants beer he give the brewer a promise. When brewer wants bread he gives the baker a promise. If they don’t trust each other very much they trade in government promises, that’s called legal tender or money. When they trust each other a lot they trade in private promises, that’s called credit.

I have occasionally received gifts in appreciation for my lectures but mostly I receive a big chunk of promises at the end of every month. I use those promises to meet other promises that I have made. And, with the promises I have left over I can get other things that I might want for the month. I keep some of my promises stored away, as a promise to myself.

In the old days when even trust in the government was low promises took the form of metal. For most people the metal had little value but they knew someone else might want it so it was good enough. Today, trust is high. Our legal system is strong and most promises are just bits in a computer system, a little electronic maker that says society promises resources to John Doe. Promises are the foundation of our economy.  That’s why when promises go bad, as they did in the sub-prime crisis, the whole economy goes bad. That’s why some of [us] think the government needs to make some new promises. We are running short."

Adam Posen, of the Bank of England's external monetary policy committee, is now convinced that the Bank needs to act fast to avoid a prolonged period of Japanese-style economic stagnation. He argues that the accumulating evidence suggests that the downside risk to doing nothing far outweighs the risks of inflation.

When the overwhelming bulk of pressures in the economy are disinflationary, and when the level of output and employment is clearly likely to be below potential for an extended period, it is right for central bankers to take the additional negative effects of protracted recession on trend productivity growth and on capacity into account.

Thankfully, some of the worst predictions have not come to pass. But the danger has not disappeared; a casual scan of the recent news reveals as much. The US has its own backlash in the form of the surging Tea Party movement. The British Labour Party just recently elected Ed Milliband as their leader, indicating a sharp tack to the left. In both cases, these shifts are likely to be politically counter-productive. But in both cases, I read this as a giant "Fuck You" to the ruling consensus that has dominated Anlgo-American policymaking since the late 1990s. 

Granted, prolonged recessions do not necessarily result in deep social unrest. From my (limited) knowlege of Japan, it does not appear that over a decade of economic stagnation has resulted in major upheavals in society. I suspect that this has much to do with the structure and characteristics of Japanese society, however. And it should be pretty clear by now that Europe is definitely not Japan.

"This poses obvious risks to political stability and commerce. It also constrains the options available to policymakers, making beggar-thy-neighbor actions such as the imposition of trade barriers, subsidization or nationalization of industries and currency devaluation more likely. History tells us that these domestic political considerations, particularly in the developing world, risk reinforcing the downward economic spiral, as policymakers appease factions and fail to reach coordinated regional/global programs. They also risk, particularly in the case of currency devaluations, setting off a [chain] reaction of competitive responses that, in the absence of regional cooperation, ultimately destabilizes the system as a whole."

Interesting, if superficial, profile of Paul Krugman's recent economic writings. Provides yet more confirmation for why I rarely bother to read them.

Soooo, does this mean Republicans oppose lending to small businesses? Politics: what fun!

Why football (soccer) is a bad business: irrational capital. Proposed solution: ownership by fans.

The voodoo economics of the TV/movie business

Yet more evidence of China moving up the value chain: a collaboration with Japanese companies in computer microchip production.

How to help people in developing countries and make a wicked profit while you're at it.