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- About a week old, but this is one of the best pieces I've read in a while. Follow-up is here.

- The, um, wanker-bankers have conned the Biffo Bunch

- Quantitative easing, explained. The Ben Bernank does not come off well

- Here is a better explanation of QEII. Here is another

- In related news, core inflation falls to record low.

In case you missed it, Bob Zoellick, the head of the World Bank, was pontificating in the FT this week about the merits of returning to some sort of gold peg for currencies. DeLong, in his typically understated fashion, shoots him down hard.

Without passing any particular judgement on Zoellick's mental faculties, I think it's fair to say that suggesting a return to the gold standard in any format is a bad idea no matter who is suggesting it. But like some form macroeconomic acne, the idea of the gold standard keeps popping back up in periods of stress. For example, see my comments on Gillian Tett's misguided op-ed in the FT last year.

At the time I argued that, using the same logic, an economy run by squirrels would use an acorn standard. Why? Because they like nuts, silly. This analogy is even more apt that I had initially realized: much like humans and gold, squirrels spend a lot of time and energy scurrying around gathering up acorns - only to promptly bury them back underground.

Where the analogy breaks down is that acorns actually have an intrinsic value (nutrition), whereas gold does not have much intrinsic value at all. Its skyrocketing price is the result of investors (and here I'm quoting DeLong again) "using gold as a speculative asset and a hedge. They are not using it [as] a medium of exchange, a unit of account, or a safe store of nominal value."

As if this weren't damning enough, a return to a gold peg wouldn't even address the global imbalances problem. It would merely shift it around: US and European central banks own some 50% of the world's gold reserves. Hmmmmm. One suspects that if Saudi Arabia was the dominant world economy, we might be hearing ideas about an oil standard. This at least would have the added benefit of being a highly liquid asset. (HA!)

Seriously folks: this is gauling. All the more so because the gold standard is one of those rare phenomena in economics where it's not a theoretical debate. We've tested it out. It doesn't bloody work.

With so many potentially bad ideas floating around about how to fix the world economy, there's absolutely no reason why we need keep discussing the one we know for sure will be a disaster. 

UPDATE: Zoellick clarifies his comments: "Gold is now being viewed as an alternative monetary asset. This is not the same as a gold standard,” said Mr Zoellick. “Gold has become a reference point because holders of money see weak or uncertain growth prospects in all currencies other than the renminbi, and the renminbi is not free for exchange. So, in relative terms, gold is appealing to people who ask where should I put my money. It is a hedge against uncertainty.”

Well alright. Nevermind then, Bob: I forgive you. But just so we're clear: "a hedge against uncertainty" is not the same thing as an alternative monetary asset, mmk?

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.

From the previous week:

The biggest problem with Basle III

A conversation with Richard Dawkins and Sir David Attenborough

A conversation with Lee Kuan Yew, prime minister of Singapore for 25 years after its founding, reflecting on old age and the risk that Singapore's success will be taken for granted.

Globalization at work: Chinese factories that are moving up the value-added chain to stay competitive.

Are emerging market bondholders ignoring history?

Paul Krugman has a bone and will not let it go, no matter how confused his thinking may be. (To be fair, I think Sumner has Krugman's arguments about the link between currencies and surpluses completely backwards, but he addresses this here).

Summary of the state of world trade

"Science: it works." The auto X-prize winners

PIMCO's Mohamed El-Erian asks the same question, but does a much better job than I in providing a comprehensive look at the global economy. I really like this piece because it takes a step back from the to-and-fro of daily market reporting and punditry - what you have instead is a healthy dose of perspective:

"In sum, the current policy approaches here and abroad are unlikely to deliver a durable and robust U.S. recovery and, critically, create sufficient growth in jobs. Yet the main debate in Washington is whether to do more of the same -- namely, another fiscal stimulus and another round of quantitative easing by the Federal Reserve. This clearly conflicts with evidence that a broader and more holistic response is needed....

What is critical to keep in mind is that this situation is part of a broad, multiyear process driven by national and global realignments. It's a secular phenomenon that needs to be better understood and navigated -- by recognizing its structural dimensions and by urgently broadening the excessively cyclical policy mindsets that abound. Unfortunately, the approach in too many industrial countries has been to kick the can down the road, seemingly hoping for a series of immaculate economic recoveries.

Policymakers must break this active inertia by implementing a structural vision to accompany their current cyclical focus. Measures are needed to address key issues, which include the change in drivers of growth and employment creation; the high risk of skill erosion and lost labor productivity; financial deleveraging in the private sector; debt overhangs; the uncertain regulatory environment; and the unacceptably high risks facing the most vulnerable segments of society.

Is there anything else?

"An already polarized political environment is becoming even more fractured by real and far less substantive issues. There is virtually no political center that can anchor consensus and enable sustained implementation of policy. Meanwhile, as anti-Washington sentiments rise, interest in a national agenda is increasingly giving way to the election cycle. Internationally, the impressive degree of cross-border coordination seen during the global financial crisis has been reduced to inconsistent -- and at times contradictory -- national responses.

This worrisome trio of increasingly ineffective national and global policy stances, intense political polarization and growing social pressures speaks to the risk that the economy's recent soft patch will evolve into something even more troublesome and sinister."

- California moves closer to paying bills with IOUs and monopoly money

- By now you have likely heard about China's epic week-long traffic jam. Maybe they should be taking driving lessons from this guy.

- John Kemp: buying into tail risk will slowly bleed your wealth; instead, buy insurers who sell tail risk

- Argentina's President accuses domestic newsmedia organizations of crimes against humanity

- Can trade liberalization reduce gender inequality?

- Book review of Sebastian Mallaby's review of the hedge fund industry: More Money Than God

I don't read Paul Krugman anymore.

Actually, that's not technically true: over Christmas I read through his book on the recent financial crisis. This is partly because Krugman has a rare gift for making economic concepts accessible to the lay reader: it's hard to find anyone who can write a book that explains the complexities of the financial crisis as lucidly as he does.

But I don't read Paul Krugman the blogger/op-edder anymore. This is not because I'm not open to his ideas, or that I don't think he has anything important to say - it's more because I feel that I already know what he's going to say.

You see, I fear that the blogger Krugman is no longer contributing nuanced ideas to the debate over economic policy. Rather, he has developed a set of positions and has chosen to simply bang on about them repeatedly. It is as though he has given up on his academic roots to become a mere public pundit for a particular point of view. The debate is over; all that's left is to convince the other side that your side is right.

He has, in other words, become the Richard Dawkins of the macroeconomy debate. Both are very clever and accomplished academics who have contributed original and valuable insights into their respective fields of study. Both have since taken up positions of being public spokespersons for controversial topics. And both are increasingly one-sided and uncompromising in their views. They have become almost a caricature of the viewpoints they espouse. Indeed, Krugman seems to have become more a slogan-generating-machine than anything else.

And it's entertaining stuff, no doubt. This sort of approach is great for running up blog traffic and book sales. However, I'm willing to bet that most people who read Paul Krugman do so to either a) reinforce their own preconceptions and feel better about themselves, or b) find a reason to get really angry. Ditto for Richard Dawkins, by the way.

The unfortunate bit about all of this is that anyone who is genuinely interested in a nuanced discussion about the economy and public policy must look elsewhere. As a case in point, the Economist's latest lead article is on the debate over government austerity measures. Krugman is mentioned in the piece as being a leading figure of the anti-austerity crowd, but is criticized for his "crude Keynesianism." Krugman's responsive post was entitled "I’m Gonna Haul Out The Next Guy Who Calls Me “Crude” And Punch Him In The Kisser." This, despite the fact that the article actually sides more closely with his point of view than the austerity folks.

Like I said, I get it: Paul's being funny and hyperbolic and whimsical. This is entertaining to read. But it doesn't actually address the issue. By focusing who is being labelled as what, who is on which side of the debate and who is falling victim to latest playful slogan that he's come up with, Krugman is reducing the quality of the debate as opposed to enhancing it. What a shame.

- The economics of the National Hockey League

- India is planning $50 billion in road projects

1. Last Thursday, when the crisis of confidence in European sovereign debt led to a sharp dip in the markets, many emerging market economies suffered as investors fled to safety (USD, YEN). This was particularly the case in Central and Eastern Europe and East Asian economies (ex-Japan). Today, the announcement of a super-massive Euro-bailout led markets in emerging economies to rebound strongly, particularly in risky asset classes. None of this is suprising. But it does drive home the point that Greece's problems are not merely a danger to Europe, but to much of the world economy. This is particularly the case for emerging markets that are heavily-reliant on foreign financing to sustain their growth.

2. It will be interesting to see if they will act upon this realization and use Greece as leverage to push for reforms at the IMF and World Bank that would give them more say in future bail-out decisions.

3. Nassim Taleb must be giddy with glee.

4. I agree with Tyler Cowen's assessment that "[t]he major European powers would not have come up with a nearly $1 trillion bailout, also involving de facto loss of ECB independence, unless they were scared ****less."

5. In the 1920s, the expert opinion of central bankers, Treasury officials, leading newspapers and many in the financial sector was that the world must return to the gold standard. Yes, there would be painful austerity and increased unemployment, but it was inconceivable that the global economy could function without the link to gold. They were wrong: clinging to gold did more harm than good.

Now we hear from many euro-politicians and eurocrats that "It is inconceivable that Greece leaves the euro." The consequences would indeed be dire. But I fear the option is dismissed out of hand because of some mental block that prevents people from even considering the possibility. This phenomenon could be termed "euro-fetters" or the "euro-mentalité" (with apologies to Barry Eichengreen). Let's be clear: a country leaving the euro is still an option, and for Greece it may even be a desirable one.

Last week saw one of the best cover pages from The Economist in a while:

Outstanding.

If you answered in the affirmative, check out the Financial Times' brand spanking new emerging markets blog: Beyond Brics. There's some really good stuff on there already (including a conversation with an Estonian cabbie about the euro), so be sure to check it out.

Chris Giles thinks that we should feel sorry for the International Monetary Fund. When countries can't agree about a contentious macroeconomic issue (like a bank tax), the IMF is asked to study the problem and report back with its findings. As Giles explains, the IMF then "takes it in the neck" for writing a report that (surprise!) some countries don't agree with.

If that weren't bad enough, the IMF is also taking criticism for things that are entirely imaginary. For example, this morning's FT features a comment piece by Kevin Gallagher, entitled "Would the real IMF please stand up?," in which the author takes the IMF to task for endorsing capital controls in a February report, and then changing its mind in an April report. I am toying with the idea of writing Gallagar a letter later today that will read thusly:

"Dearest Mr. Gallagher,

Prior to criticizing the IMF in an internationally-respected newspaper, it would assist your cause if you actually read the $#%*ing reports.

Yours,
IPE Journal"

-----------------------

Let us break down Gallagher's argument into its component pieces. He begins with the following statement:

"In a landmark report in February the IMF broke its longstanding fixation on capital account liberalisation. In a staff position note the IMF found that temporary controls on capital inflows have been effective and should be an essential part of a nation’s macroeconomic toolkit."

Two problems. First, the position note states explicitly - on the title page - that the views expressed are those of the authors of the note, and not of the IMF or its Executive Board. Surely, Gallagher at least read the title page. Second, the note does not come even close to stating that capital controls are an essential part of the toolkit. The Feb report:

"A key conclusion is that, if the economy is operating near potential, if the level of reserves is adequate, if the exchange rate is not undervalued, and if the flows are likely to be transitory, then use of capital controls—in addition to both prudential and macroeconomic policy—is justified as part of the policy toolkit to manage inflows."

So yea, controls are a justified option so long as you meet a laundry list of other criteria first. Despite what Gallagher suggests, this is a qualified endorsement:

"A significant caveat, however, to the use of capital controls by individual countries, relates to the potential for adverse multilateral consequences. In the present circumstances, global recovery is dependent on macroeconomic policy adjustment in EMEs, which could be undercut by capital controls, notably in cases where currencies are undervalued. Widespread adoption of controls by EMEs could exacerbate global imbalances and slow other needed reforms"

By contrast, Gallagher argues that the April IMF report is "driven more by ideology than rigorous research. The GSFR says capital controls are inefficient, but fails to acknowledge that controls, when designed properly, are seen as second-best instruments to make markets more efficient by correcting distortions." This is, in a word, poppycock. An excerpt from the April report:

"When the available policy options and prudential measures do not appear to be sufficient or cannot provide a timely response to an abrupt or large increase in capital inflows, capital controls may be a useful element in the policy toolkit. However, if the inflows are not temporary, but are driven by more fundamental factors, policymakers should adjust their macroeconomic policies to address the root causes, instead of mitigating the effects of inflows or attempting to limit them through various measures."

There's plenty more in there. Indeed, a careful reading of both reports suggests no difference in the IMF's view of capital controls, which is approving but qualified.

In sum, Gallagher has managed to get himself all worked up over something which is entirely the figment of his own imagination. He provides links, in his own article, to reports that he clearly has not read. And he got published in the FT, to boot.

It really pulls at my heart strings to think of the poor IMF staffers who are subject to such constant abuse. I mean, what good is all that tax-free income if you have to spend it on anti-depressants and alcoholic escapism?

I am beginning to think that The Economist, the liberal* weekly news magazine, is the source of the op-ed cycle in my local newspapers. Let me explain.

Since I apparently live in some podunk backwater of civilization, my copy of The Economist arrives about 4-5 days after it hits the news stands. (This, incidentally, is better than my copy of the Financial Times, which does not arrive at all). Since it takes me at least another 4-5 days to plow through the material, I'm usually quite far behind the news cycle by the time I've finished reading the thing. Luckily, the news-magazine is full of analysis, background and special features that stay relevant well after the headlines have faded.

However. What I'm starting to notice is that some of the opinion pieces in my local & national newspapers start sounding verrrrry familiar to things I've just read in The Economist, one week late. It's almost as if it there is a lag while the op-ed contributers further down the news chain plough through their own copies while desperately looking for intelligent-sounding things to say.

I will pursue this and collect further evidence to support my theory. In the meantime, if you're curious as to what the local Bugle-Herald-Tribune-Observer will be writing next week, I have good news. You no longer need a time machine.

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(*liberal in the classic, J. S. Mill sense of favouring individual liberty while still recognizing the useful role of the state in many areas. Not liberal in the Paul Krugman sense.)

- On how Russia managed to tip the scales in the aforementioned insubordinate, rebellious, and mutinous nation.
- Want to increase financial literacy? Kill all the business journalists.
- The evolution of the English breakfast (and with it, England). I had to stop and eat something half-way through.
- One of my favourite creatures from the Planet Earth series: the nautilus, a living fossil.
- The quote of the day, via Free Exchange. Read the last sentence carefully.