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By Karl Smith, Contributor The New York Time’s Liz Alderman reports: As an elementary school principal, Leonidas Nikas is used to seeing children play, laugh and dream about the future. But recently he has seen something altogether different, something he thought was impossible in Greece: children picking through school trash cans for food; needy youngsters asking playmates for leftovers; and an 11-year-old boy, Pantelis Petrakis, bent over with hunger pains. Ryan Avent takes an uncharacteristically “balanced” view: It is no use trying to figure out what “fair” is. It is hard to blame Germans who have saved prudently and minded their own business for not wanting the value of those savings eroded by inflation, even moderately. But at some point there needs to be a bit of perspective about the relative costs and benefits of different crisis approaches. Yes. I see. Perspective. Different Approaches. These are good points. At the same time, there are children stealing food because they have nothing to eat! And, the head of the Bundesbanks says: We didn’t change interest rates at our last meeting as they are currently appropriate and in accordance with our assessment of economic developments, price stability and our monetary analysis . . . We shouldn’t expect too much” from a potential rate cut, Weidmann said today. “Monetary policy will not be able to solve structural problems in the euro area. The structural problem here is the existence of a monetary union where central bank officials believe that children rummaging through the garbage for food is an appropriate economic development. As Ryan probably knows my sentiments are unfashionable and hinge on notions like noblesse oblige and the burden of privilege. But, as long as we remain loyal to the ideal of a meritocratic democracy then we must demand institutions that meritocratic democracies are capable of managing. Loose confederations of quasi-independent nations states with no sense collective identity are not among them. Democracies cannot manage empires. The attempt is grotesque and ethos of meritocracy do not even afford us the appropriate means of redress.

From: http://www.forbes.com/sites/modeledbehavior/2013/04/19/the-folly-of-empire-starving-greek-children/

By Karl Smith, Contributor Kevin Drum asks what’s really going on with real interest rates. On one level its obvious, A Global Savings Glut Stupid. But, In theory, as [Ryan] Avent says, if the savings level is high, then interest rates will go down until it’s once again attractive to borrow all that money to invest in real-world production of goods and services. But that hasn’t happened, which means the real problem we’re facing is the mirror image of a global savings glut: namely, a global investment drought. For more than a decade now, no matter how low interest rates have gone, the appetite for real-world investment has remained anemic. This is a big question but I want to suggest that the answer might lie over here in this general direction somewhere: China has become the Jeff Bezos of Industrial Production China at some points has had investment rates of in excess of 40% of GDP. For super-geeks this exceeds the Ramsey Rule at a zero discount rate. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do. Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. This is a smart move if you think cities produce agglomeration effects. With apologies to the less wonkish, China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich. In this way China has become like Amazon’s Jeff Bezos, a Destroyer-of-Worlds.1 You can’t win a physical capital accumulation battle against someone whose plan is to overinvest and lose money on the physical capital. And just as you there is no point even trying to fight a determined central bank on interest rate policy; there is no point fighting a determined China on Industrial policy. That leaves a huge swath of investment unavailable. 1] Bezos is properly styled: His Entropic Incessancy, Destroyer-of-Worlds. …read more

Source: FULL ARTICLE at Forbes Latest

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