News digest / Catching up on news (12.06.2014)

I've been way too busy and there's way too much catching up to do, so here's a selection of important stories from the past month. If you read them then you'll know some of what I do:

"Ebola control: the Cuban approach." By Shah Ebrahim, et al, December 6, 2014, The Lancet. URL: http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)62329-1/fulltext

"Judge Allows Glenn Beck Boston Marathon Defamation Lawsuit To Move Forward." By Kyle Mantyla, December 2, 2014, Right Wing Watch. URL:  http://www.rightwingwatch.org/content/judge-allows-glenn-beck-boston-marathon-defamation-lawsuit-move-forward#sthash.Gu8a2LEd.dpuf

"Driessen: Corporate Tax Fate May Hinge on Modeling Omission." By Paul Caron, December 2, 2014, TaxProfBlog. URL: http://taxprof.typepad.com/taxprof_blog/2014/12/driessen.html

"Russia Warns Of Recession In 2015 Amid Sanctions And Low Oil Prices." By Nataliya Vasilyeva, December 2, 2014, AP. URL:http://www.huffingtonpost.com/2014/12/02/russia-recession_n_6255810.html?utm_hp_ref=tw

"Study: Campaign Cash Brings Tax Benefits On Capitol Hill." By Peter Oberby, December 2, 2014, NPR. URL: http://www.npr.org/blogs/itsallpolitics/2014/12/02/368010428/study-campaign-cash-brings-tax-benefits-on-capitol-hill?sc=tw

"Whites greatly overestimate the share of crimes committed by black people." By Ana Swanson, December 1, 2014, Washington Post. URL:http://www.washingtonpost.com/blogs/wonkblog/wp/2014/12/01/whites-greatly-overestimate-the-share-of-crimes-committed-by-black-people/?Post+generic=%3Ftid%3Dsm_twitter_washingtonpost

"Capital controls feared as Russian rouble collapses." By Ambrose Evans-Pritchard, December 1, 2014, The Telegraph. URL:http://www.telegraph.co.uk/finance/economics/11266746/Capital-controls-feared-as-Russian-rouble-collapses.html

"Real world contradicts right-wing tax theories." By David Cay Johnston, December 1, 2014, Al Jazeera. URL: http://america.aljazeera.com/opinions/2014/12/laffer-curve-taxcutshikeseconomics.html 

"Which past is prologue for Putin’s Russia?" By Hannah Thoburn, November 30, 2014, Reuters. URL: http://www.reuters.com/article/2014/11/30/idUS318808040420141130

"Let's talk about 'black on black' crime." By Leonard Pitts Jr., November 30, 2014, Miami Herald. URL: http://www.mcclatchydc.com/2014/11/30/248504/leonard-pitts-jr-lets-talk-about.html 

"In America, black children don’t get to be children." By Stacey Patton, November 26, 2014, Washington Post. URL: http://www.washingtonpost.com/opinions/in-america-black-children-dont-get-to-be-children/2014/11/26/a9e24756-74ee-11e4-a755-e32227229e7b_story.html

"Keynes Is Slowly Winning." By Paul Krugman, November 26, 2014, New York Times. URL: http://krugman.blogs.nytimes.com/2014/11/26/keynes-is-slowly-winning/?smid=tw-NytimesKrugman&seid=auto

"Why Interstellar Should Be Taken Seriously -- Very Seriously." By Paul Stefanski, November 26, 2014, Huffington Post. URL:http://www.huffingtonpost.com/paul-stefanski/why-interstellar-should-b_b_6213002.html?utm_hp_ref=tw

"An Open Letter of Apology to the United States of America [about Benghazi]." By Brian Joyce, November 25, 2014, Huffington Post. URL:http://www.huffingtonpost.com/brian-joyce/an-open-letter-of-apology_b_6219340.html?utm_hp_ref=tw

"Should Putin fear the man who ‘pulled the trigger of war’ in Ukraine?" By Lucian Kim, November 25, 2014, Reuters. URL: http://www.reuters.com/article/idUS368525725520141125

"Why America may be set for success." By Fareed Zakaria, November 24, 2014, CNN. URL: http://globalpublicsquare.blogs.cnn.com/2014/11/24/why-america-may-be-set-for-success/

"Falling apart: America's neglected infrastructure." By Stefe Kroft, November 23, 2014, CBS News. URL: http://www.cbsnews.com/videos/falling-apart-americas-neglected-infrastructure/

"Ukraine gave up its nuclear weapons potential for reassurances it would be defended." By Bennett Ramberg, November 22, 2014, Guelph Mercury. URL: http://www.guelphmercury.com/opinion-story/5151036-ukraine-gave-up-its-nuclear-weapons-potential-for-reassurances-it-would-be-defended/

"Special Report: Crimean savers ask: Where's our money?" By Steve Stecklow, Elizabeth Piper and Oleksandr Akymenko, November 20, 2014, Reuters. URL: http://www.reuters.com/article/idUSKCN0J40FJ20141120

"Enough Is Enough: The President's Latest Wall Street Nominee." By Sen. Elizabeth Warren, November 20, 2014, Huffington Post. URL:http://huff.to/1uKQUYB

"Top Obama official: Ky. not ready on new bridge." By Deirdre Shesgreen, November 19, 2014, Cincinnati. URL: http://www.cincinnati.com/story/news/politics/2014/11/19/top-obama-official-ky-ready-new-bridge/19286625/

"Clarke and Dawe - Growth first. Then these other things can be dealt with, whatever they are." ClarkeAndDawe, November 19, 2014, YouTube. URL: http://youtu.be/OTfSZ0D39AI

"Sen. Bernie Sanders On How Democrats Lost White Voters." By Steve Inskeep, November 19, 2014, NPR. URL: http://n.pr/1wUqrVb

"Legal Panel At [Conservative] Federalist Society Begrudgingly Accepts Obama's Immigration Powers." By Sam Stein, November 19, 2014, Huffington Post. URL: http://huff.to/1qVW6DJ

"Stop calling me 'the Ebola nurse'." By Kaci Hickox, November 17, 2014, Guardian. URL: http://gu.com/p/43bqe

"US voter turnout is an international embarrassment. Here's how to fix it." By Bernie Sanders, November 10, 2014, Guardian. URL:http://gu.com/p/436mm

"Про що мовчать розумні українці." By Stanislav Bilchenko, November 9, 2014, Ukraininska Pravda. URL: http://www.pravda.com.ua/columns/2014/07/9/7031378/?attempt=1

"Beyond The Unemployment Rate: Look At These 5 Labor Indicators." By Sonari Glinton, November 7, 2014, NPR. URL: http://n.pr/1vVVOyf

"Capitalism Is Making China Richer, But Not Democratic." By Frank Langfitt, November 7, 2014, NPR. URL: http://n.pr/1qtMeAD

"Fewer Babies Are Born Prematurely, But Many Still Suffer." By Nancy Shute, Novebmer 6, 2014, NPR. URL: http://n.pr/1tgMCT4

"Interstellar Travel? Nah! (Part 2)." By Dr. Sten Odenwald, November 5, 2014, Huffington Post. URL: http://huff.to/1qq537W

Roubini: Global economy running on one engine

More bad news from "Dr. Doom."  Doesn't Roubini know that a Republican Congress will solve everything, and that despite its higher growth rate, the U.S. is still inferior to austerity-loving Europe?

Roubini's analysis is going to be so far over the heads of my Tea Party friends who think belt-tightening by the public sector is the answer to everything, the European example be damned. 

Bottom line: Team Keynes was right. Either you're a Keynesian cheerleader and get to sip his milkshake at the victory party, or you're with the losing team sent home to your trailer community in mirthless shame on a quiet bus.

The Single-Engine Global Economy

By Nouriel Roubini

October 31, 2014 | Project Syndicate

The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the United States and its close cousin, the United Kingdom).

The second engine – the eurozone – has now stalled after an anemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession. Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds – rapid Chinese growth, zero policy rates and quantitative easing by the US Federal Reserve, and a commodity super-cycle – become headwinds.

So the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust.

Falling oil prices may provide cheaper energy for manufacturers and households, but they hurt energy exporters and their spending. And, while increased supply – particularly from North American shale resources – has put downward pressure on prices, so has weaker demand in the eurozone, Japan, China, and many emerging markets. Moreover, persistently low oil prices induce a fall in investment in new capacity, further undermining global demand.

Meanwhile, market volatility has grown, and a correction is still underway. Bad macro news can be good for markets, because a prompt policy response alone can boost asset prices. But recent bad macro news has been bad for markets, owing to the perception of policy inertia. Indeed, the European Central Bank is dithering about how much to expand its balance sheet with purchases of sovereign bonds, while the Bank of Japan only now decided to increase its rate of quantitative easing, given evidence that this year’s consumption-tax increase is impeding growth and that next year’s planned tax increase will weaken it further.

As for fiscal policy, Germany continues to resist a much-needed stimulus to boost eurozone demand. And Japan seems to be intent on inflicting on itself a second, growth-retarding consumption-tax increase.

Furthermore, the Fed has now exited quantitative easing and is showing a willingness to start raising policy rates sooner than markets expected. If the Fed does not postpone rate increases until the global economic weather clears, it risks an aborted takeoff – the fate of many economies in the last few years.

If the Republican Party takes full control of the US Congress in November’s mid-term election, policy gridlock is likely to worsen, risking a re-run of the damaging fiscal battles that led last year to a government shutdown and almost to a technical debt default. More broadly, the gridlock will prevent the passage of important structural reforms that the US needs to boost growth.

Major emerging countries are also in trouble. Of the five BRICS economies (Brazil, Russia, India, China, and South Africa), three (Brazil, Russia, and South Africa) are close to recession. The biggest, China, is in the midst of a structural slowdown that will push its growth rate closer to 5% in the next two years, from above 7% now. At the same time, much-touted reforms to rebalance growth from fixed investment to consumption are being postponed until President Xi Jinping consolidates his power. China may avoid a hard landing, but a bumpy and rough one appears likely.

The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. Moreover, many emerging-market countries are still growing robustly, maintain sound macroeconomic policies, and are starting to implement growth-enhancing structural reforms. And US growth, currently exceeding potential output, can provide sufficient global lift – at least for now.

But serious challenges lie ahead. Private and public debts in advanced economies are still high and rising – and are potentially unsustainable, especially in the eurozone and Japan. Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving technological innovation.

This combination of high debt and rising inequality may be the source of the secular stagnation that is making structural reforms more politically difficult to implement. If anything, the rise of nationalistic, populist, and nativist parties in Europe, North America, and Asia is leading to a backlash against free trade and labor migration, which could further weaken global growth.

Rather than boosting credit to the real economy, unconventional monetary policies have mostly lifted the wealth of the very rich – the main beneficiaries of asset reflation. But now reflation may be creating asset-price bubbles, and the hope that macro-prudential policies will prevent them from bursting is so far just that – a leap of faith.

Fortunately, rising geopolitical risks – a Middle East on fire, the Russia-Ukraine conflict, Hong Kong’s turmoil, and China’s territorial disputes with its neighbors – together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. Nonetheless, they are slowing down capital spending and consumption, given the option value of waiting during uncertain times.

So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds, and fights are breaking out among the passengers. If only there were emergency crews on the ground.

HBR blogs: Western malaise spawns extremist parties

Mr. Haque at Harvard Business Review offers us as good a summary as any of the Western economic malaise [emphasis mine]:

While the super-rich are vastly disproportionately enjoying the fruits of global prosperity, too many are being left behind. What is common in societies with extremists on the rise? The poor and the middle feel cheated — because they are. In the sterile parlance of economics, their wages aren’t comparable to their productivity — but more deeply, their lives are literally not valued in this system. And so they turn, in anger and frustration and resignation, to those who promise them more.

In all these societies, social contracts prize growth over real human development. Economies “grow”; but the benefits of growth are enjoyed vastly disproportionately by a small coterie of people — usually those politically connected; at the very top of a socially constrained pecking order; a caste society. We are told this is capitalism; in fact, it’s a perversion of free markets I call “growthism.”

Indeed, we were never meant to worship at the altar of GDP, the DOW or Nasdaq as real indicators of people's well-being.  

And as I've remarked before, U.S. workers are the most productive in the world; meanwhile, U.S. labor practices are among the most efficient (meaning, hands-off) -- 4th in the 2013-14 WEF rankings -- in the globalized economy. So why do U.S. workers feel so insecure and put-upon?  

As before, John Maynard Keynes foresaw this and pointed the way [emphasis mine]:

Yet, today, the situation Keynes foresaw is repeating itself — only more subtly. The problem today isn’t a small number of creditor nations, to whom the vast benefits of global wealth are flowing. It is a small number of super rich individuals: oligarchs, monopolists, scions. In a sense, the same problem, of vast, unjust imbalances, has reemerged; this time beyond national boundaries. Today, the super-rich and their empires span multiple nation-states; whisked from home to home and country to country by private transport, they use different infrastructure (who cares if roads and airports are crumbling when you’ve got a helipad?), play by different rules (do tax laws really matter if your assets are all offshore?), and even different methods of wielding political influence (why knock on doors when you can fund your own super-PAC?).

Here's how Haque sums it up:

The paradox of prosperity is this. It is at times of little that we must plant the seeds of plenty; not fight another for handfuls of dust. And it is at times of plenty when we must harvest our fields; and give generously to all those who enjoy the singular privilege of the miracle we call life.

(Nope, extremists; that’s not communism — not government redistribution of dust. It is, as Keynes foresaw, just common sense).

Once again I tip my hat to Keynes, a giant among men.

Our Economic Malaise Is Fueling Political Extremism

By Umair Haque

June 5, 2014 | HBR Blog Network

URL: http://blogs.hbr.org/2014/06/our-economic-malaise-is-fueling-political-extremism/

Shiller: Higher taxes + stimulus to fix U.S. debt

Debt-Friendly Stimulus

By Robert J. Shiller

March 20, 2013 | Project Syndicate

With much of the global economy apparently trapped in a long and painful austerity-induced slump, it is time to admit that the trap is entirely of our own making. We have constructed it from unfortunate habits of thought about how to handle spiraling public debt.

People developed these habits on the basis of the experiences of their families and friends: when in debt trouble, one must cut spending and pass through a period of austerity until the burden (debt relative to income) is reduced. That means no meals out for a while, no new cars, and no new clothes. It seems like common sense – even moral virtue – to respond this way.

But, while that approach to debt works well for a single household in trouble, it does not work well for an entire economy, for the spending cuts only worsen the problem.  This is the paradox of thrift: belt-tightening causes people to lose their jobs, because other people are not buying what they produce, so their debt burden rises rather than falls.

There is a way out of this trap, but only if we tilt the discussion about how to lower the debt/GDP ratio away from austerity – higher taxes and lower spending – toward debt-friendly stimulus: increasing taxes even more and raising government expenditure in the same proportion. That way, the debt/GDP ratio declines because the denominator (economic output) increases, not because the numerator (the total the government has borrowed) declines.

This kind of enlightened stimulus runs into strong prejudices. For starters, people tend to think of taxes as a loathsome infringement on their freedom, as if petty bureaucrats will inevitably squander the increased revenue on useless and ineffective government employees and programs. But the additional work done does not necessarily involve only government employees, and citizens can have some voice in how the expenditure is directed.

People also believe that tax increases cannot realistically be purely temporary expedients in an economic crisis, and that they must be regarded as an opening wedge that should be avoided at all costs. History shows, however, that tax increases, if expressly designated as temporary, are indeed reversed later. That is what happens after major wars, for example.

We need to consider such issues in trying to understand why, for example, Italian voters last month rejected the sober economist Mario Monti, who forced austerity on them, notably by raising property taxes. Italians are in the habit of thinking that tax increases necessarily go only to paying off rich investors, rather than to paying for government services like better roads and schools.

Keynesian stimulus policy is habitually described as deficit spending, not tax-financed spending. Stimulus by tax cuts might almost seem to be built on deception, for its effect on consumption and investment expenditure seems to require individuals to forget that they will be taxed later for public spending today, when the government repays the debt with interest.  If individuals were rational and well informed, they might conclude that they should not spend more, despite tax cuts, since the cuts are not real.

[BTW, out of $788 billion paid out under the Recovery Act, aka stimulus bill, $291 billion of it went to tax cuts and credits that were not very stimulative. This was done at the GOP's insistence. - J]

We do not need to rely on such tricks to stimulate the economy and reduce the ratio of debt to income. The fundamental economic problem that currently troubles much of the world is insufficient demand. Businesses are not investing enough in new plants and equipment, or adding jobs, largely because people are not spending enough – or are not expected to spend enough in the future – to keep the economy going at full tilt.

Debt-friendly stimulus might be regarded as nothing more than a collective decision by all of us to spend more to jump-start the economy. It has nothing to do with taking on debt or tricking people about future taxes. If left to individual decisions, people would not spend more on consumption, but maybe we can vote for a government that will compel us all to do that collectively, thereby creating enough demand to put the economy on an even keel in short order.

Simply put, Keynesian stimulus does not necessarily entail more government debt, as popular discourse seems continually to assume. Rather, stimulus is about collective decisions to get aggregate spending back on track. Because it is a collective decision, the spending naturally involves different kinds of consumption than we would make individually – say, better highways, rather than more dinners out. But that should be okay, especially if we all have jobs.

Balanced-budget stimulus was first advocated in the early 1940’s by William Salant, an economist in President Franklin Roosevelt’s administration, and by Paul Samuelson, then a young economics professor at the Massachusetts Institute of Technology. They argued that, because any government stimulus implies higher taxes sooner or later, the increase might as well come immediately. For the average person, the higher taxes do not mean lower after-tax income, because the stimulus will have the immediate effect of raising incomes. And no one is deceived.

Many believe that balanced-budget stimulus – tax increases at a time of economic distress – is politically impossible. After all, French President François Hollande retreated under immense political pressure from his campaign promises to implement debt-friendly stimulus. But, given the shortage of good alternatives, we must not assume that bad habits of thought can never be broken, and we should keep the possibility of more enlightened policy constantly in mind.

Some form of debt-friendly stimulus might ultimately appeal to voters if they could be convinced that raising taxes does not necessarily mean hardship or increased centralization of decision-making. If and when people understand that it means the same average level of take-home pay after taxes, plus the benefits of more jobs and of the products of additional government expenditure (such as new highways), they may well wonder why they ever tried stimulus any other way.

Adam Smith on selfishness v. self-interest

UPDATE (06.08.2013): Originally, I posted this article without any commentary although I found it extremely interesting, and, I won't kid you, very heartening for my progressive beliefs. For some reason it's one of my most popular posts.  I'm not sure why.  Maybe it's because people of all stripes, even today, see Adam Smith as the final authority on capitalism.  

Personally, I'm not willing to go that far. Experience and scholarship have contributed much to our understanding of capitalism/free enterprise, call it what you will, since Smith's time.  To give one giant example: Keynes. Say what you want, but the guy invented macroeconomics. Until him, there was only microecon, Smith's provenance. So we gotta give prop's where they're due.

Nevertheless, it's certainly worth discovering in the article that follows what Adam Smith himself actually thought about "capitalism," a word that wasn't even invented in Smith's lifetime; it was coined by 19th-century socialists to disparage what they saw as an economic system that exploited the working class.

I'm no economic scholar, I'm not even an entrepreneur. However, during extensive international experience as a consultant I've seen in developing countries what confirms Smith's belief that a certain moral underpinning (trust, fair dealing, a man's word is his bond, deal on a handshake, etc.), not to mention robust courts that enforce verbal as well as written contracts, are necessary for "economic individualism" to flourish without harming the common good. As Americans and Westerners, we overlook their powerful role too often. And it undermines our credibility when we preach the virtues of the "free market" to developing nations: like criticizing the composition of their roof while ignoring the crumbling foundation.  

Speaking of the common good, or general welfare, that's a concept under constant threat in the U.S., although it's specifically mentioned in the U.S. Constitution. Constitutional "purists" tell us there are no superfluous words in that revered old parchment, so it's worth contemplating what exactly was meant by the general welfare, and how it can be protected. Alright, enough of my two cents.



A Tale of Two Smiths: What Capitalism's Founder Would Think of Goldman's Greed

By John Paul Rollert

April 20, 2012 | Next New Deal

Adam Smith made a distinction between self-interest and selfishness -- and he knew that too much of the latter would lead a nation to ruin.

It has been over a month since Greg Smith's letter of resignation sent Goldman Sachs into full PR panic mode. Since then, the firm has completed its great "muppet" sweep, Mr. Smith has secured a blockbuster book deal, and Lloyd Blankfein has found himself fighting off stories of a growing power struggle at the top of Goldman high command.

All of this makes for good copy, but it risks obscuring the enduring moral dilemma at the heart of the original letter. Namely, when it comes to doing business, can we make a meaningful distinction between self-interest and selfishness? Or, apropos of Mr. Smith, should a place like Goldman ever hold itself to a higher standard than "How much money did we make off the client?"

Another Smith certainly thought so: Adam Smith, the founding father of modern economics. He first made his name as a moral philosopher with The Theory of Moral Sentiments, a careful diagnosis of the concern we have for others, the attention we show ourselves, and how the tension between the two underwrites a common code of ethics.

One of the principal villains of Smith's work was Bernard Mandeville, an occasional philosopher who impishly elided fine-grained distinctions. His scandalous work, The Fable of the Bees, was an allegorical poem involving a thriving beehive that bore more than passing resemblance to 18th-century England. Accounting for the affluence and ease the bees enjoyed, Mandeville made two contentions sufficient to give any high-minded economist heartburn. 

First, he claimed there was no essential difference, morally speaking, between the con man and the merchant. Both were driven by selfish instincts to get the better of their fellow man (or bee), and to that end, both trucked in deceit. Yes, the con man broke the law, but the merchant hid behind it.

Mandeville's second claim was even more scabrous: So be it. Vice, not virtue, kept the wheels of commerce turning, with the benefits shared by all:

Thus Vice nurs'd Ingenuity,
Which join'd with Time and Industry,
Had carry'd Life's Conveniences,
It's real Pleasures, Comforts, Ease,
To such a Height, the very Poor
Liv'd better than the Rich before,
And nothing could be added more.

If these lines sound a little bit like "greed is good," then you get Mandeville's point. Human beings are selfish, and thank goodness for it. Otherwise, we might end up like the bees, who are nearly wiped out after a spell of virtue saps their ambition, spoils their economy, and exposes them to outside attack.

When he stepped forward to challenge these views, Smith knew that he had to provide a compelling distinction between pursuits that are self-interested and those that are merely selfish. He granted Mandeville that there was "a certain remote affinity" between them insofar as both are motivated by a concern for personal well-being, but he appealed to common sense in saying that that we don't view all human desires equally. My interest in having a clean shirt is not only legitimate, it's laudable, whereas my longing for a panda skin sportcoat is not only illegitimate, it's an outrage.

Fair enough. But how exactly do we make these distinctions? Smith says we come by them naturally, by engaging others and discovering where our desires echo, overlap, and, finally, are at odds with one another. This process, iterative and ongoing, defines our moral sentiments, the felt necessities of right and wrong that shape and restrain our actions.  It also defines for us what Smith called "a fair and deliberate exchange," the very type of interaction at the heart of a commercial enterprise. 

When he turned his attention to economics, Smith did not think of himself as devising a system that was antagonistic or even alien to the one he had already developed. A free market provided individuals a space to engage each other in the pursuit of their own private interests, but that realm was not free from moral sentiments, nor should it be. Engaging in business was no less a part of human interaction than raising children or making friends, and the idea that a commercial sphere dominated by the grossest behavior would not contaminate the rest of society was not only silly, it was dangerously naive.  

This was Smith's greatest difference with Mandeville: He did not believe that a nation in which people pursued their interests irrespective of one another would be affluent. It wouldn't even be stable.  Riven by "hostile factions," society would seethe with conflict, for people with different interests would view each other with "contempt and derision."  In such an environment, Smith observed, "[t]ruth and fair dealing are almost totally disregarded," for the interests of others have no moral claim on us.

Is Goldman Sachs such an environment? Greg Smith says so, but only the people who work there know whether the culture is as "toxic and destructive" as his letter claims. Yet to the degree that clients are viewed with contempt and derision, especially by leadership, Adam Smith would say that we should hardly be surprised, as the other Mr. Smith seems to be, by "how callously people talk about ripping their clients off." This is to be expected. The line between selfishness and self-interest, in business as in all human pursuits, appears only when we feel that the interests of others occasionally require us to restrain our own. When we stop caring, that line disappears, and with it some very worthy things — personal integrity, self-respect, professional pride — that money can't buy.

John Paul Rollert is an Adjunct Assistant Professor of Behavioral Science at the University of Chicago Booth School of Business.

Krugman: U.S. debt/deficit know-nothings

There should be a law that this article must be read aloud at Tea Party meetings and Ron Paul rallies. This is so, so important to read and understand, if you're serious about understanding America's fiscal situation.

Nobody Understands Debt

By Paul Krugman
January 1, 2012 New York Times

In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they're talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic "experts" on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they've been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn't know anything about our postmodern, fact-free politics.

But Washington isn't just confused about the short run; it's also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem's size.

Deficit-worriers portray a future in which we're impoverished by the need to pay back money we've been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don't — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn't make postwar America poorer. In particular, the debt didn't prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation's history.

But isn't this time different? Not as much as you think.

It's true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar's worth of foreign claims on America is matched by 89 cents' worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that's already deep in hock to the Chinese, you've been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn't at all like a mortgage on America's future doesn't mean that the debt is harmless. Taxes must be levied to pay the interest, and you don't have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion.

But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that's why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today's conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.