The Economist reviews Martin Wolf’s The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis, and shows a centrist going rogue. The world economy has not healed itself following the last bust in 2008 because the systemic issues have not been addressed: there is too much of a reliance on banks and too little effort into making our financial systems resilient. Wolf seems to have seen through the fog of confusion arising from the crash of the economy, and he sees we are in the postnormal, where everything has changed.
The Economist, The world economy: How to fix a broken system
Mr Wolf’s proposals stem from an exhaustive assessment of the origins and contours of the crisis, which make up the bulk of the book. Plenty has already been written on this; “The Shifts and the Shocks” contains little that has not been said elsewhere. Mr Wolf’s contribution is comprehensiveness and a piercing logic in piecing the disparate elements together. He weaves the macroeconomic and financial elements of the crisis, its origins and aftermath, into an all-encompassing analysis. Along the way he demolishes many of the popular explanations—such as that the mess was due to greedy bankers or to loose monetary policy—as too simplistic.
The result is convincing and depressing; there are no quick fixes. The origins of the crisis lie in the revolutionary changes in the structure of the global economy and finance in the 1990s and early 2000s (these are the “shifts” of the book’s title). The macroeconomic shift was the emergence of a “savings glut” as countries from China to Germany saved more than they invested, pushing down real interest rates. Both at a global level and within the euro area financial innovation and freer capital mobility transformed these excess savings into huge cross-border capital flows, sending asset prices and credit soaring and, in the process, creating an inherently fragile financial system. Unfettered finance transformed the savings glut into a credit bubble. And in both cases the bursting of that bubble worsened the savings glut, as households, companies and governments in Europe slashed their spending.
Mr Wolf argues that the post-crisis recovery has been feeble because too many policymakers failed to understand this dynamic. Rather than accepting that bigger fiscal deficits would be the natural counterweight to private thrift, politicians pushed for austerity. Far too little emphasis was put on restructuring unpayable debts. At the same time, the underlying causes of the savings glut have, if anything, become stronger as deeper factors such as rising inequality have kept overall spending weak. Larry Summers, a Harvard economist, has argued that the rich world faces “secular stagnation”. Mr Wolf also believes that weak demand is here to stay. So, too, is the fragility of finance. Despite “manic rule making” he argues that banks are still a powder keg, with insufficient capital, and are liable to wreak havoc when they blow up.
This grim assessment leads Mr Wolf towards radicalism, both in macroeconomic and financial reforms. His more moderate suggestions include requiring banks to hold vastly more capital and the creation of insurance schemes that allow emerging economies, the most plausible engines of demand, to import capital safely and sustainably. But moderate change may not be enough. Pushing his analysis to its logical conclusion, he argues that the only way to deal with today’s underlying problems—a fragile financial system and a secular weakness in demand—may be to move away from bank-based credit altogether and rely on permanent budget deficits financed by central banks. Forcing banks to match their deposits with safe government bonds would reduce the risks of bank crashes and encourage a healthier reliance on equity finance. Permanent money-financed deficits would, in turn, provide a safer way to sustain spending than private-asset booms and busts. If done responsibly, they need not cause inflation.
Radical to admit that the financial markets are not self-regulating. The next step is to move control of the financial system out of the hands of those who make money by manipulating financial markets.
There are some things too important to run by wagering.
Oliver Richenstein, Putting Thought Into Things
Sara Maitland on solitude and creativity.
William James said long ago that we have as many identities as people that we know, and probably more than that. We are different with different people. I’m different with my son than I am with you. We have these different identities that we try on, and they surround us… I’m really interested in looking at that as a mechanism of persuasion when it comes to regular old persuasion, when it comes to education, when it comes to public health, and when it comes to international issues as well. It’s finding that latitude of acceptance and finding out how to use it successfully.
UCLA neuroscientist Matthew Lieberman, author of Social: Why Our Brains Are Wired to Connect, studies "latitudes of acceptance" to understand what makes us change our minds – something we’re notoriously reluctant to do.
Also see Dan Pink on the psychology of persuasion.
Lieberman’s full Edge conversation is well worth a read.
These two techniques for organizing control in a system of proliferating variety are really rather dissimilar. The strange thing is that we tend to live our lives by heuristics, and to try and control them by algorithms. Our general endeavor is to survive, yet we specify in detail (‘catch the 8:45 train’, ‘ask for a raise’) how to get to this unspecified and unspecifiable goal. We certainly need these algorithms, in order to live coherently; but we also need heuristics — and we are rarely conscious of them. This is because our education is planned around detailed analysis: we do not (we learn) really understand things unless we can specify their infrastructure. The point came up before in the discussion of transfer functions, and now it comes up again in connection with goals. […] Birds evolved from reptiles, it seems. Did a representative body of lizards pass a resolution to learn to fly? If so, by what means could the lizards have organized their genetic variety to grow wings? One has only to say such things to recognize them as ridiculous — but the birds are flying this evening outside my window. This is because heuristics work while we are still sucking the pencil which would like to prescribe an algorithm.
Stafford Beer, “Brain of the Firm,” 1972.
1972, folks. “This is because heuristics work while we are still sucking the pencil which would like to prescribe an algorithm.”
One for would-be CompSci students.
This is 2014. September of 2014. Twitter was founded in March of 2006, so for over eight years the company has been caught up in a destructive love/hate relationship with private (‘direct’) messaging. At one time the company was actually considering the end of private messaging.
However, the rise of tools like SnapChat, Hangouts, WhatsApp, and WeChat has shown that private messaging is a huge business on the consumer side. And in business, work chat tools like Slack, HipChat, and Flowdock are growing considerable userbases very quickly.
So, Why hasn’t Twitter already released group private messaging? They’ve been talking about it for years.
Twitter’s new CFO, Anthony Noto, added his voice to the discussion about group private messaging, but didn’t say it was imminent:
The CFO also hinted that group chats might be in the pipeline. Direct messaging, Twitter’s private chat function, has traditionally been put on the backburner. Because Twitter’s service is public in nature, the role of private messaging has always been a subject of debate within the company. Over the last year, amid the explosion of messaging apps, Twitter has given direct messaging a more prominent role. Noto suggested direct messaging might become more social.
Today, users can only send a direct message to one account at a time. But if, say, Noto tweeted about a football game and a couple of his “college buddies” replied to it, “I’m not sure I want to have (that) conversation in front of my boss and the rest of the 271 global users. I might want to take that to a private setting which you can do through direct messaging. Today you can only do that one to one as opposed to one to many. So that’s an example of innovation around sharing or expression that we can pursue over time.”
This only reinforces the fact that Twitter continues to miss the huge opportunity for group messaging, even while struggling for more uptake and revenue growth.
Inserting random favorites in my timeline is small potatoes compared to group messaging, so why can’t they focus on big initiatives?
Dan Hon adds this:
— Dan Hon (@hondanhon)September 4, 2014
And Josh Russell adds these thoughts:
— Josh Russell (@joshr)September 4, 2014