Deferred crunch?

From the Reagan era onwards successive US administrations created the conditions in which around $1.5 trillion anti-gravitated upwards to the richest 1% of the population. This being more capital than the fuckoff rich could actually handle by themselves, they duly sent about $1 trillion back down the wealth pyramid in the form of highly suspect loans, largely targeting the very people who'd been missing out on the party (and boy had they been made to know what a friggin' cool fiesta this was).

We all know what happened next. An unthinkably large and very black hole opened up beneath the global financial system. Like Wile-e Coyote, the banks didn't realise that they had been running in mid-air until the late summer of 2008.

Such was the magnitude of the problem and the interconnectedness of its constituent parts, that even the party representing the interests of the richest 1% under a cloak of populism and jubilant ignorance, had no choice but to step in and transfer much of the risk from the private to the state sector, from bankers to taxpayers (and bondholders, lest we forget) — or from capitalism to socialism, according to the Republican Party's kool-aid quaffers.

Socialism doesn't usually involve building levees around storm-threatened capital, but in the US the bail-outs were accompanied by a change of administration and a 'stimulus' package involving increased largesse from central purses...and that's like, socialism, right?

Anyway, this urge to borrow and spend yet more came about partly because the new guys at the helm had a long-standing commitment to bringing America's treatment of the sick up to civilised norms, brooded over long before the Crunch. That the inefficient structures being replaced actually cost more (and thus implied bigger government) than the full-coverage systems of 'socialised' medicine operated by several European countries, wasn't something that the ideologues wished to ponder much at this point.

Whether or not one is oddly predisposed to see the transfer of risk from the corporate sphere to the state and its system of public debt in strictly Marxist terms (Capitalism v Socialism), the truth is that the sickness itself is essentially unchanged: a cancer within the global credit market.

Stimulus in the States and austerity in the EU appeared for a while to have kept it in remission, but over the past fortnight or so we've been seeing how the Eurozone could become the weakest link in the ongoing therapy package.

Suddenly you had a single currency with multiple attitudes and responses to the sudden surge of government debt as a proportion of GDP. Some of the member countries were caught with their pants down. In fact the Irish had yanked their own trousers down with gay abandon in 2006, an uninhibited display of fiscal self-endangerment which tempted the likes of WPP to pack up and move to Dublin. (Even a canny number-cruncher like Sir Martin Sorrel was unable to ask the obvious question of this deal which looked too good to be true.) While the Greeks are by nature inclined to take a narrow bend on a mountain road at full speed, the Irish simply thought they'd chance it in order to make a few extra Euros.

Who's next in the line of dominos? Spanish banks appeared to have dodged the sub-prime bullet, but GDP in Spain had been overreaching itself, so when the local construction boom turned to bust, they got caught holding the gruesome negative equity baby anyway. They are also carrying considerable exposure to Portuguese debt and Portugal is on most people's list as European sovereign state 'Most Likely to Go Tits-up Next'. (Though some have their money on Belgium with its disfunctional political system.)

Furthermore, as a member of the Eurozone, Spain has limited defences against a concerted speculative attack. If the bond market considers it a default-risk, the cost of government borrowing (and in 2011 it will need to conduct a substantial new round) will soar which will make the upping of Spain's tits something of a self-fulfilling prophecy.

The question is, Is Spain TBTF? And what of France, where the political will to impose austerity is likely to waver in the face of the sort of social commotion they just adore over there.

The tumour is still there, largely in remission, and nobody really thinks that the patient (even if its just the European single currency we're talking about) can be allowed to die. But can it really be 'austerised' out of the European body politic, and hasn't this crisis revealed that the Euro has a genetic predisposition towards ailing from this kind of credit cancer?

Coffee and the global economy

Keynes and Hayek on a rap junket

The hand not so invisible

For all those of us who are generally too busy to read The Wealth of Nations before deploying Adam Smith in public discussion, here's a handy bulleted list of the areas of public life (hat tip to Economist's View) in which this otherwise laissez-faire thinker thought it appropriate for governments to get involved:

• Sterling marks on plate and stamps on linen and woollen cloth
  
• Enforcement of contracts by a system of justice
  
• Wages to be paid in money, not goods;
• Regulations of paper money in banking
  
• Obligations to build party walls to prevent the spread of fire
• The Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’
• Rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’)
• ‘Premiums and other encouragements to advance the linen and woollen industries’
  
• ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
• Ensuring the ‘cheapness or plenty [of provisions]’
  
• Patrols by town guards and fire fighters to watch for hazardous accidents
  
• erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours)
  
• Coinage and the mint
  
• The Post office
  
• Regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on)
  
• Temporary monopolies, including copyright and patents, of fixed duration
  
• Education of youth (‘village schools’, curriculum design and so on)
  
• Education of people of all ages (tythes or land tax)
  
• Encouragement of ‘the frequency and gaiety of publick diversions’
• The prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population
  
• Encouragement of martial exercises
  
• Registration of mortgages for land, houses and boats over two tons
  
• Government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’
  
• Laws against banks issuing low-denomination promissory notes
  
• Natural liberty may be breached if individuals ‘endanger the security of the whole society’
  
• Limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’)
  
• Moderate export taxes on wool exports for government revenue.
  

Bankocracy

"For the free-marketers, the idea of endless bail-outs was just so obscene that the temptation to walk the walk of market discipline would somewhere, sometime, have proved too great to resist. Lehman did not create the reality of Too Big to Fail, it merely exposed it to general view. There was a brief moment when the general horror at the new state of affairs seemed likely to lead to change; but as stock markets and liquidity have recovered, that moment is receding, and we seem to be settling back into the status quo ante, with a few cosmetic changes about bonuses. It has been a masterful fight-back by the big banks. We the paying public can’t do anything much except admit defeat and settle back for the next set of bills. In the meantime, perhaps we should try and think of a name for the new economic system, which certainly isn’t capitalism: that, remember, is all about ‘creative destruction’, and the freedom to fail. That’s exactly what we don’t have. The most accurate term would probably be ‘bankocracy’."

Fascinating LRB review by John Lanchester of two insider accounts of Lehman Bro's failure last year, of which this is the conclusion. Once TBTF had manifested itself in public in September 2008, it became clear that our economic system had mutated into something beyond the current theoretical underpinnings. Perhaps it needs a new name, Lanchester asks.

M-shaped recovery?

"Under the rules of financial capitalism, corporations have become experts at extracting value — but not at creating it. Prosperity wasn't shared because 20th century organizations weren't built to share it. 20th century organizations were built to create value for shareholders, by acting "strategically" at anyone and everyone else's expense, by any means necessary: through lobbying, monopoly power, cost-shifting and hiding, or, most recently, trillions in bailouts.

"Who is it that organizations have become experts at extracting value from? It's, well, the rest of us: society. Whether as employees, taxpayers, or consumers, the gains that accrue outside the boundaries of the organization are small indeed. Bailing out Wall Street has already cost every American household thousands of dollars — and that's just for the latest crash. Capitalism 1.0 — financial capitalism — impoverishes everyone who isn't a financial capitalist.

"Our great challenge isn't "recovering" from a financial crisis. It is rehabilitating an economy. What we've really got to recover from isn't yesterday's financial crisis, but a century of toxic, self-destructive industrial-era business as usual. Without rehabilitation, tomorrow's crises will make today's look like a walk in the park."

Umair Haque at Harvardbusiness.org

"No green shoots, not even yellow ones"

Pessimism is our state of mind of the day.

After all, as I think I might have mentioned once before, even the chap who invented optimism defined it as the understanding that one has no right to expect things to be any better than they are.

It was reported yesterday that Sir Supreme Dalek reckons that the recovery will be italic I shaped: "A gentle rise maybe - back half of this year or second half of this year will look better than the first half. I think 2010 will see a recovery of sorts, a pretty anaemic recovery."

The cycle certainly appears to have bottomed earlier than a lot of people anticipated back in March, but aren't we still a bit, well...fucked? Indeed, are we not still, in the words of John Lanchester, "like the cartoon character who's run off the end of a cliff and hasn't realised it yet."?

In the UK national debt will soon hit 79% of GDP and will cost up to £47bn to service...more than the current transport budget. The average British household still owes 160% of its annual income. This is bleak enough and will surely take decades to sort out.

The optimist might say that everyone, banks included, is now starting to emerge from what was after all a severe, but temporary liquidity crisis. What would the pessimist say?

Some of the most important global financial institutions undoubtedly possess holes of an unspecified magnitude on their balance sheets. In a normal world we'd declare them insolvent, but in this particular world we've collectively decided that their situation is more like the kind of negative equity that many of their customers are suffering from — in other words, time for the banks to just carry on as best they can and hope a future rise in asset prices will provide the de-tox.

Bail-outs, recapitalisations, TARPs and TALFs have all been deployed to deal with the terrible uncertainty that has come to surround the solvency of the banking system. Truth is though that this 'uncertainty' is rather convenient, because it suits the banks (and now a whole load of taxpayers) that certainty about the true value of some of their assets should be postponed indefinitely. Like..walk slowly and hope your arm doesn't drop off and maybe nobody will spot that you're a zombie!

Beggars sitting on a gold bench?

Obama's new bedside book, Las Venas Abiertas de America Latina (1971), was a revealing gift last week from Hugo Chávez.

With its malign view of external investment in the region, Eduardo Galeano's book is a standard text for students of 'dependency theory', which views Latin American nations as essentially wealthy societies perennially dispoiled by serial muggers from outside.

The Uruguayan Marxist's exposition also epitomises what economists call the 'natural resource myth'. This determination to believe that the true potential for prosperity is somehow hidden in the ground beneath one's feet so afflicted the Spanish in their demented drive for native gold and other minerals that they completely failed to perceive that the real wealth generation emanating from their colonial escapades was taking place in Northern (and Protestant) Europe's financial centres.

For aside from blips like the one we are currently experiencing, it has generally been better to be in credit than in commodities, and Venezuela's black gold is surely just a modern substrate for the same old Latin American delusion. Resource wealth is so often a curse not a blessing. (Though Iceland is probably pleased to be able to fall back on fish right now...)

If you add to that a belief that trade is always a zero sum game and that all foreign involvement in local economies is exploitative, then you have a recipe for getting trapped within a dogmatic outlook which explains Latin American underdevelopment as purely and simply the cost of industrial progress in the rich world, and thus provides a reliable framework for further underachievement.

I'm not saying that this continent's commercial relationships with the outside world have never been exploitative, I just don't agree with the proposition that the majority of foreign investors here are imperialistic in intention and effect. It's frankly no more helpful than the statement that all the local cops are fascist pigs.

Even the most blatantly one-sided relationships in the post-colonial era (say the activities of the United Fruit Company) are not entirely black and white when observed in detail. This early multinational brought an albeit fleeting prosperity to particularly underdeveloped tracts of tropical lowland, whilst funding schools and hospitals along with philanthropic projects such as the excavation of Quiriguá in Guatemala.

Che Guevara originally came to this country to apply for a job in one of 'el pulpo's' hospitals. Gabriel García Márquez meanwhile grew up in Colombia surrounded by United Fruit plantations (Macondo is in fact named after one) and reports in his autobiography on the boom years, the period of struggle and repression, and then the enormous sense of loss when the people of his home town faced up to the fact that the company was gone and would never return.

En Tiempo de Vacas Flacas

AA Gill explained on Sunday why steak is suddenly back on the menu:

"Culturally, the one thing you don't want to get caught holding right now is clever irony — the market for that's going to tank. Cynicism is the luxury of a gluttonously overindulged society. And the surest sign that the times are unforgiving is the return of steak. Steak is the bellwether ingredient. Over the past decade, it almost completely disappeared from aspirational menus. Chefs don't like cooking it and smart new glossy people don't like eating it, because of the fat and the cholesterol and the blood and the bad karma and the waste of rainforest and the mad cows. But mostly because steak's common. Anyone can eat a steak and anyone does. Steak is what condemned men ask for as their last meal. There's nothing ironic about a steak, so it slipped off the board. But in the last week, three people have asked me where they should go to get the best steak, there have been half a dozen new steakhouse openings and somebody was on the wireless banging on about ageing T-bone. That's a confluence of synchronicity. That's the butterfly beat of the cultural shift."

Banking baubles

Via FT Alphaville

Quote of the Day

“I am seriously worried that British government is losing control…The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn...We cannot even do what Iceland did to save its skin...The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression...England has not defaulted since the Middle Ages. There is a real risk it may do so now.”
Ambrose Evans-Pritchard, the Telegraph 's Business Editor

Well Hedged

On the one hand Professor Niall Ferguson suggests that the de-coupling of 'Chimerica' may be hastened by the Credit Crunch leading to a post-American world faster than anyone had anticipated. All three of his conditions for conflict in the twentieth century now apply in our own: an empire in decline, ethnic disintegration and economic instability.

On the other hand he notes that America remains the global centre of innovation, has always managed to rely on strong leadership in hard times and historically the rest of the world always seems to suffer more even when the crisis originates in the US.

As far as the fate of the world goes, I'm back with the optimists these days. Indeed it is my New Year's resolution to stay that way as long a possible in 2009! This is partly because I've seen that many of the people doing all the doom-saying right now are Johnny-come-latelies to ardent pessimism; they are in fact the same people who were being defiantly optimistic back in late 2007 when I was offloading all my equities. (At least Nouriel Roubini is a mighty consistent downer.)

There's a good deal of gloating going on about the likely edging out of both neocons and neolibs from Western political and economic life, but those two groups' most trenchant enemies appear, oddly enough, to have largely internalised some of the neos faultier tenets - such as "money makes the world go round" and "America is an imperial power".

There are cultural factors in play here which many of those predicting the doom of the dollar are failing to pick up on. Britain no longer has an empire yet Greenwich remains the centre of global time. Likewise the Dollar and the English Language remain important standards of convenience worldwide and the Internet gives both an important edge in the globalised world.

Most Latin American countries have a love-hate relationship with the unfortunately-named Washington Consensus, but those that have consolidated democracy, cut back on trade barriers and simplified the red tape choking their economies have gone on to benefit from greater prosperity. I don't see China displacing America and the wider West down here any time soon.

I told you so...

Says Professor Niall Ferguson.  

His new book The Ascent of Money was plugged by Ed Vaizey (OP) recently on BBC Parliament's BookTalk and I'm definitely tempted to get hold of a copy later in the year. 

I only caught two episodes of the accompanying Channel 4 series which appeared to have been hastily re-edited after the events of the late Autumn on Wall Street. 

Ferguson is famously a counter-factual historian - building his analysis of major world upheavals from what-if scenarios, such as the notion that Europe might have done a lot better for itself if Britain and Germany had avoided such a head-on conflict in 1914. 

The marriage of economic convenience between Britain's empire (then rather nicely plugged into China) and German manufacturing was the pinnacle of the first great era of globalisation and it all fell apart when some Balkan loon whacked Archduke Ferdinand. 

Now we have Chimerica, explained Ferguson in Part 6 - a system whereby China saves using US Dollar Treasury Bonds which keeps itc currency weak and its products cheap for American consumers, who meanwhile have (or had) access to one of the largest sources of easy credit in economic history. 

In Part 4 Prof. Ferguson had been not so much counterfactual as not-all-the-factual, something I was taught very early on at Cambridge was the greatest sin a historian could commit. An episode that would supposedly explain why insurance doesn't really work in truly exceptional moments of crisis and disaster went off on an extended ideological gripe about welfare spending. 

Ferguson rather too blithely permitted the 'Chicago Boys' their moral compromise with Pinochet's murderous regime in Chile, failing to point out that a) the Friedmanites' policy's led to the biggest banking clusterfuck since, well, now...and b) that it was the series of consecutive socialist administrations that have followed the reintroduction of democracy in Chile which have really consolidated the 'economic miracle' there. 

It was Professor G.R. Elton who greeted the '86 intake of historians at Cambridge with a valedictory speech detailing his long fight against ideologues in the faculty. Historians' job was not to generate new theory through a selective gathering of the facts, but rather to make sure that theories developed elsewhere were exposed to the maximum number of historical facts in order that complex, muddled reality would always triumph over simplistic models (such as Marxism, his own great bugbear!). 

Ferguson himself concluded his series with the suggestion that the 'Quants' - those fiendishly clever mathematical types dedicated to predicting future market movements  - are prone to basing their prognostications on their own, inevitably limited, experience of the past.  As a result many were chewing on roast black swan this Christmas...

Quote of the Day

"One consequence of the financial crisis will inevitably be capital outflows from developing countries. The necessary corollary of capital outflows is trade surpluses. Without running a trade surplus no country can consistently support capital outflows...This is just another way of saying that a lot of developing countries that had been running trade deficits will soon be, if they aren’t already, running trade surpluses. Instead of contributing their net demand to the world economy, as they had via their trade deficits, they will now be contributing their net supply...This will not help the world imbalances. The biggest contributors of net demand are the US and non-Germany Europe, and both of these regions are seeing a rapid decline in their net demand contribution (i.e. their trade deficits are expected to shrink). To adjust to this decline the world needs new sources of net demand or else global production must contract sharply via factory closings and rising unemployment. But the largest net supply country, China, is increasing its export of net supply (its trade surplus has been rising) while several trade deficit countries in Asian and elsewhere are switching to trade surplus or otherwise trying to reduce their deficits...This cannot be sustainable. We cannot expect production to rise while consumption declines except if it comes with a dangerous rise in forced investment (also known as inventory). The crisis cannot even begin to be considered in its final stages until this issue is resolved."
Michael Pettis, Professor at Peking University's Guanghua School of Management.

Quote of the Day

"In fact, "we" did not borrow recklessly. Many financiers speculated with borrowed money to get very rich, and the financial economy is now unraveling as their assets turn out to be worthless. The Bush administration plunged the Treasury deeper into debt so that millionaires could pay lower taxes and a needless war could be waged. The entire economy borrowed from foreign central banks to finance purchases of products that the U.S. economy no longer made at home because of a perverse trade policy. And yes, consumer borrowing increased to make up for wages that were stagnant or declining. But that is not an undifferentiated "we" in the sense of thee and me. Mainly, it is a "we" made up of the rich, the powerful, their political enablers and their perverse policies."
Robert Kuttner responds to yesterday's quote from Martin N. Baily.

Quote of the Day

"We got into this mess to a considerable extent by over-borrowing. Now, we're saying, 'Well, O.K., let's just borrow a bunch more, and that will help us get out of this mess.' It's like a drunk who says, 'Give me a bottle of Scotch and then I'll be O.K. and I won't have to drink anymore.' Eventually, we have to get off this binge of borrowing."
Martin N. Baily, economist at the Brookings Institution; once on President Bill Clinton Council of Economic Advisers.

Please return to your seat...

The essence of Taleb and Mandelbrot's argument here seems to be that in the process of over-simplifying our economic system - for reasons of efficiency - we've actually made it a whole lot more complicated, too complicated in fact for our little brains to cope with. Capitalism is about to experience the kind of heavy turbulence the like of which has never been seen before...

Floating around on my raft...

A good friend back in London recently congratulated me for having 'abandoned the sinking ship' in good time. Every day I follow the news from home and it does now seem that HMS Blighty is going down so fast and so deep that soon not even Robert Ballard will be able to find it.

If I'd settled out here back in the early 90s I wouldn't have had this opportunity to vicariously experience the UK's media - and indeed its cultural and intellectual life - through fibre-optic cables and signals beaming down at me from satellites circling in high orbit. And it's an odd experience this peering into the descending air bubble of Britain from outside...

Last Friday's Newsnight Review featured a panel discussion about the likely artistic consequences arising from this loss of prosperity. I found it rather distasteful in the end - the UK's buzzard-like chattering classes are so sure that none of this mess is their fault - that it's those awful philistine bankers who need to be excoriated - and would apparently rather experience (and comprehend) this crisis indirectly through the products of their own seemingly burgeoning meanings industry, than devote themselves to more hands-on / less narcissistic activities. Say what you like about the Yanks, right now their habit of picking themselves up, dusting themselves off and just getting on with it, is considerably more appealing to me these days.

The UK's economy has frankly only prospered in recent years because it has functioned as one big leveraged bet on itself. And for this the dastardly bankers surely can't take all the blame. Living out here I've come to see ever more clearly how people who risk money they can't afford to lose are often just as noxious to the common good as the most unregulated of capitalist bastards.

For example, V's father was a successful property speculator and accumulator of wealth, from a near standing start. Some of his sons however, have proved to be extremely poor imitators, largely because they seem unable/unwilling to make the present sacrifices (like saving) necessary for reaping benefits later. This means that several seem to have become rather set in the notion that what is generally required is a not insignificant injection of someone else's money in order to place their circumstances firmly on the path to exponential improvement.

Back in Blighty, there's been a consensus trade in the futures of UK PLC which even the Labour government bought into wholeheartedly. Those at the top of the financial food chain made vast profits which kept the whole thing chugging along nicely, but those in the social bell-curve's bump wanted in too, and the only way they could properly participate was by borrowing - which ultimately the government and the financial institutions did little to discourage. (An illusion of wealth always keeps Britain's middle classes from moaning too much.)

Along the way the boundaries between the real and the speculative economy were blurred, with banks in the US in particular wantonly muddling their core and proprietary trading arms in order to first generate, then disperse, new levels of exploitable risk.

It's always the 'greater fools' who bring these houses of cards down - the banks should know this - but they don't seem to have institutionalised ways of avoiding the temptation of sucking gullible low net-worth individuals into the game. Of course it remains deeply unfashionable to pass comment on how the masses somehow always manage to screw things up (though their effect on television is a lesser taboo), but democracy and capitalism do seem to be highly prone to popular cack-handedness.

That the financial sector represents around a fifth of the UK's GDP is bad enough, but there are other major sectors which are equally prone to cyclical unwindings, such as the PR, branding and advertising industries. Sure, new ventures need to spend here in order to get to market and establish themselves, but many existing products are effectively engaged in a marketing arms race, forced to match the monies thrown at agencies by their competitors. Marketing spend this tends to go off the end of a cliff the moment the economy shifts into reverse.

The global downturn hasn't really hit Guatemala properly yet. If anything, the collapse in oil prices has alleviated the sensation of crisis that was peaking around June. Looking around Antigua today - a town geared towards extracting a tithe from visitors - there are simply too many travel agencies, too many cyber cafes, too many boutique hotels etc. Normally this kind of endemic overgrazing would eventually lead to a clear-out, but here these mini-industries get sucked into in a race to the bottom where the bottom never actually materialises, and as a result, even the businesses that started out trying to offer these services to a higher standard begin to degrade. Perhaps a recession will instigate the necessary cull?

Anyway, the LRB's Donald MacKenzie has been a fine commentator on all matters crunchy. In this article he takes a look at the prospects for the hedge fund industry.

While up to a third may come a cropper as a result of the current crisis (thus dissipating up to a quarter of the wealth invested in their funds) - there seems to be something in their very structure which forces them to close positions even when it seems clear they might soon turn a corner - MacKenzie still feels they may ultimately assume an even more important role within the financial services sector:

"As banks retreat from trading risky financial instruments, a potentially very profitable space will open up for those still prepared to do so, and hedge funds will step in to fill it."

Quote of the Day

If stupidity got us into this mess, why can't it get us out? 

Will Rogers, 'Oaklahoma's favourite son"

Quote of the Day

"How many times does the end of the world as we know it need to arrive before we realise that it's not the end of the world as we know it?"

Michael Lewis, author of Liar's Poker

The end of the world is certainly chic this winter, what with Survivors on telly and both Blindness and Quarantine showing in UK cinemas right now.  It strikes me that it is easier to imagine a near complete apocalypse than a more partial one, though the latter is a scenario that right now appeals to me creatively. What would it be like to exist where the disorder within civilisation is chronic and fluctuating rather than the more acute scenario imagined by the likes of The Happening. There's something of this in Cormac McCarthy's The Road, but the break with the past is still pretty definitive there. 

On a separate note I listened to a podcast yesterday in which a number of leading economists reported back from the wild frontiers of their profession. Nothing I heard dissuaded me from the notion that this remains one of the shallower academic disciplines. 

It seems to me that the basic problem economists face is the abiding one of complex non-linear systems. One way to deal with them, and this was the path of traditional economics, was to pretend that non-linear reality could somehow be reduced to predictable linear realities. So traditional economics simply assumed that underlying the way that we collectively value and consume stuff, there is a set of consistently selfish and rational individual decision processes. 

Technological advances in the last two or three decades have permitted economists to venture out away from their restrictive models - indeed, the processing power available today allows all kinds of individuals in both the academic and commercial worlds to develop models have have at least the semblance of deciphering the behaviour of networks. 

Economists have been shamelessly pilfering from parallel advances in other, perhaps deeper, disciplines such as psychology and neuroscience and the result has been a whole range of new ways forward such as Behavioural Economics and Network Economics. But these are still very early days and the results from all this complex number-crunching often remain unsatisfactory, even when compared to intelligent intuition. And 'people respond to incentives' is not a very profound insight on its own. 

I did Economics to A-level at school. In spite of the views expressed above I still think some sort of basic (and compulsory) instruction in this field should be included in the syllabus from an earlier stage - though perhaps it would be best to style such a course as 'Risk'.  

A citizenry with a better understanding of risk, with a sharpened perspective on long and short term goals would be one that is particularly well equipped to deal with this already rather challenging century. It would nicely set-up those with commercial inclinations of course, but would also have wider benefits across the student base. 

One last puzzle gleaned from the podcast was this. At times like these, when we all have a sense of lost certainty and lost control, to what extent does heterodox thinking break more easily into the mainstream? 

From what I have so far read of Naomi Klein's The Shock Doctrine gratuitous experimentation in times (and locations) of societal distress may not always be a good thing. But I certainly have a sense that 2008 is one of those historical moments when old myths are floundering and new ones are pushing to the forefront. 

The US is certainly experiencing one of its periodic eras of political re-invention. It will be interesting to whether, as Simon Schama appears to believe, it has a store-room full of alternative, but equally American, ways of existing in the world. 

I detect notes of both glee and trepidation behind the budding 'Post-American' publishing phenomenon. (e.g. Parag Khanna's The Second World: Empires and Influence in the New Global Order and Fareed Zakaria's The Post American World.) Many of us would like to see a more multilateral world - both politically and economically - and some might even take pleasure in seeing the bully get a bloody nose, but if America really is in decline, how can we ensure that the set of ideas that transformed 'the West' at the end of the eighteenth century continue to prevail within global civilisation?