Keep in mind that things can go badly under either a yes or no vote today.  (I am not even sure the referendum result will make such a difference, since it is all in the subsequent deal, or lack thereof, and the terms would be different anyway.)  Yet I do not think a hyperinflation is the likely result.

As things stand, Greece could run out of euros in well under a week.  That is a deflationary pressure.  To be sure, Greek companies are already starting to print up various kinds of scrip.  But those will be media of exchange priced in terms of euros, not new media of account.  The script will to some extent stabilize against deflationary pressures, by preventing a total economic collapse, but they won’t themselves cause hyperinflation.  If one company prints up too much scrip, the value of that brand will fall in terms of euros.  In contrast, a “domestic” medium of account is usually firmly entrenched in a classic hyperinflation.

Greece may eventually move away from the euro as a medium of account, but that likely would happen only once an alternative payment medium — perhaps the new drachma — is relatively stable in value.  Again, there is no expected hyperinflation.  Deposit confiscation will be required long before hyperinflation is an option, do note that is not exactly a reassuring thought.  In fact hyperinflation is too slow and inefficient a way to steal from the citizenry in this setting.

An interesting set of issues revolves around bill prepayment.  If you didn’t know, electronic transfers within the country are still allowed, so everyone is trying to prepay bills rather than receive a haircut on their deposits (see the link above).  Various events could speed up or slow down these pressures, for instance greater stability combined with outside aid could limit deposit confiscation risk and thus lower bank deposit velocity.  Alternatively, greater risk could cut either way.  It could lead to more prepayment and higher velocity, but it also could induce suppliers to take actions to make prepayment harder.  There are some complex options here, though still I don’t see them giving rise to a hyperinflation.  Again, the key point is that even under Grexit scenarios the euro remains a medium of account for a while still, and deflationary deposit confiscation will be needed before hyperinflation could extract enough seigniorage.

As Frances Coppola points out, Grexit is a process not an event and many of the early and indeed intermediate steps already are underway.

One of the most striking aspects of the Greek situation is just how much the Greek government has lost the public relations battle.  They have lost it among the social democracies, and they have lost it most of all with the other small countries in Europe.  They retain some sympathy in the American government, but we are not willing to put any money on the table and basically we want the European Union to clean up the problems for us.

If you look at the progressive economists, Stiglitz, Krugman, Piketty and Sachs all recommend a “no” vote on the referendum.  Though they would not frame it this way, they are advocating a kind of extra austerity for the purposes of a greater long-run good; Greece’s primary surplus vanished some time ago, so signaling a break with Europe will only make matters tougher.  You could call this “properly mood affiliated austerity,” cloaked by strange presumptions about bargaining, namely the view that a “no” vote will induce a more favorable offer.  It seems, with their on the ground understanding, most Greek economists are strongly in the “yes” camp.

The progressives do have some good points and I absolutely favor significant debt relief for Greece.  That said, the Greek government has handled the last few months so badly it really is incumbent on them to show they will do better.  I don’t see many signs in that direction, quite the contrary, and any reasonable democratic government will ask for Greek institutional progress before putting up much more in the way of money.  The entire handling of Greferendum should alert the progressives that they have been egging on the wrong horse; the heroic Hugo Dixon nails it.

I take the progressive “clustering out on a limb” here as a sign that, for better or worse, progressivism as an ideology has reached and indeed gone beyond its high water mark.  The progressives are siding with a corrupt, clientist state, which won’t cut its defense spending down to Nato norms, against some admittedly imperfect social democracies, thereby sustaining the meme of powerful aggressor vs. victim, Arnold Kling telephone.

Interfluidity has an interesting but quite wrong post on how to think about Greece.  International relations simply could not be run on the principles he advocates, most of all in conjunction with democratic nation states.  His weakest point becomes evident when he writes:

Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save?

The nerve. The fucking nerve. Lenders, having been made nearly whole on their ill-conceived, profit-motivated punts, now fear that if anybody is nice to somebody who doesn’t deserve it, where will it end? I’d resort to that cliché about chutspa, the kid who murders his parents then seeks leniency ‘cuz he’s an orphan. But it’s really too cute for the occasion.

That’s a non-answer, with anger filling in for the required substance as to why Germany and others should allow this.  “Your government is making things much worse.  If you want to borrow so much more from us, you have to play by the rules and also stop spitting in our face and calling us Nazis and terrorists while negotiating” is more relevant — and yes relevant is the right word here — than any point he makes.

A political program has to be something that voters could at least potentially believe, and international negotiations therefore cannot stray too far from common-sense morality, including when it comes to creditor-debtor relations.  That is the point which today’s progressive economists are running away from as fast as is humanly possible.  And for all the Buchanan-esque and public choice points about “rules of the game” this one about common sense morality unfortunately has ended up as the most important.

Look at this way: if you lost a public relations battle to Germany, you are probably doing something very badly wrong.

Saturday assorted links

by on July 4, 2015 at 12:29 pm in Uncategorized | Permalink

1. “Kids are too rebellious, he says. “A disciple is what you want.””  Is La Monte Young the greatest living composer?

2. Pete Sampras writes a letter to his 15-year-old self.

2. How companies really get valued.

4. Does Germany care about Greece more than America cares about Puerto Rico?

5. What would it cost to produce and order all of Wikipedia?

6. How do outsiders evaluate getting an economics PhD?

An Abandoned Space Ship

by on July 4, 2015 at 7:32 am in History, Science | Permalink

Russian urban explorer and photographer Ralph Mirebs discovered an enormous, abandoned hangar in Kazakhstan.

Hangar1

Inside were the remains of the Soviet space shuttle program.

Hangar2

More amazing photos from the source here or from a secondary news piece here.

China facts of the day

by on July 4, 2015 at 4:58 am in Current Affairs, Economics | Permalink

Greece is small, China is large:

The Shanghai Composite has now fallen 12.1 per cent since Monday, its third consecutive week of double-digit losses since hitting a seven-year high on June 12.

The Shanghai index is firmly in bear market territory, down 28.6 per cent since the June peak, while the tech-heavy Shenzhen Composite has fallen 33.2 per cent.

There were also signs on Friday that the stock market turmoil is beginning to reverberate beyond China. The Australian dollar, often traded as a proxy for China growth, is down 1.2 per cent to a six-year low of US$0.7539.

The 21st Century Business Herald, a Chinese daily newspaper, on Friday quoted multiple futures traders as saying they had received phone calls from the China Financial Futures Exchange instructing them not to short the market.

That is from Gabriel Wildau at the FT.  China’s brokerages have pledged over $19 billion to help “stabilize” the market, not usually a good sign.

That said, flights into Greece for July-September seem to be down by up to fifty percent.

Fewer than 4,000 tigers roam across the Asian continent today, compared to about 100,000 a century ago. But researchers are proposing a new way to protect the big cats: redefine them.

The proposal, published this week in Science Advances, argues current taxonomy of the species is flawed, making global conservation efforts unnecessarily difficult.

There are up to nine commonly accepted subspecies of tigers in the world, three of which are extinct. But the scientists’ analysis, conducted over a course of several years, claims there are really only two tiger subspecies: one found on continental Asia and another from the Indonesian islands of Sumatra, Java and Bali.

If the tiger is redefined more broadly, the emphasis can be on saving tigers as a whole, rather than having to treat subpopulations in very particular and sometimes inefficient ways.  Monetary theory enters into this problem as well:

At the heart of the debate is a concept called “taxonomic inflation,” or the massive influx of newly recognized species and subspecies. Some critics blame the trend in part on emerging methods of identifying species through ancestry and not physical traits. Others point to technology that has allowed scientists to distinguish between organisms at the molecular level.

[Nearly 200,000 ‘new’ marine species turn out to be duplicates]

“There are so many species concepts that you could distinguish each population separately,” Wilting said. “Not everything you can distinguish should be its own species.”

That is all from Robert Gebelhoff.

Scott Sumner has the scoop:

In one important respect southern Italy is different from Greece. Like eastern Germany, southern Italy is part of a larger and more prosperous fiscal union. For many decades, Italy has been doing the things that American progressives would recommend, pouring lots of fiscal stimulus into the south, to build up the economy. But nothing seems to work. Indeed from Greece to Italy to southern Iberia, the entire southern tier of Europe is doing quite poorly. But why? And what can America learn from the failure of Italian policies aimed at boosting the mezzogiorno?

American progressives will sometimes argue that we have much to learn from the successful welfare states in northern Europe. Perhaps that’s true. But I’d have a bit more confidence in that claim if they could explain what we have to learn from the failed welfare states in southern Europe. Indeed I’d have more confidence in progressive ideas if they even had an explanation for the failed welfare states of southern Europe. But I don’t ever recall reading a progressive explanation. Indeed the only explanations I’ve ever read are conservative explanations, tied to cultural differences.

PS. The mezzogiorno has roughly 1/3 of Italy’s 60 million people, making it almost twice as populous as Greece. In absolute terms, incomes there (17,200 euros GDP per person in 2014) are far lower than among American blacks or Hispanics. In contrast, GDP per person in northern Italy was about 31,500 euros in 2014. And while the gap between eastern and western Germany is narrowing, the gap in Italy is widening. Why?

Friday assorted links

by on July 3, 2015 at 12:17 pm in Uncategorized | Permalink

1. Is there a new Iran?

2. Victorian bathing machines.

3. Seven writers who changed their minds.

4. Norway is building a superhighway for bees.

5. Might Japan cut benefits for the elderly?

Puerto Rico fact of the day

by on July 3, 2015 at 2:09 am in Current Affairs, Law | Permalink

From Max Ehrenfreund:

…because of an obscure law known as the Jones Act, which bans foreign vessels from shipping goods between U.S. ports, businesses in Puerto Rico have to use the U.S. merchant marine to import anything. They can’t just hire whatever boats and crew are available, which makes shipping even more expensive. The cost of transportation in Puerto Rico is twice that in the neighboring Caribbean nations…

Robert Laszewski writes:

After all of this and two complete open enrollments, only 40% of those who are eligible for Obamacare have signed up—far below the proportion of the market insurers have historically needed to assure a sustainable risk pool.

If this were a private enterprise enjoying these kinds of benefits [ namely legal coercion], and only sold its product to 40% of the market, its CEO would be fired.

Looking at this picture, only 20% of those eligible for Obamacare, who make between 251% and 300% of the poverty level, bought Obamacare. Why?

ACA

The Obama administration will in fact be increasing the subsidies it will pay to insurance companies.

“The law will not treat a ledger record as authoritative if everyone knows that the current longest chain contains blocks generated by an anonymous attacker who replaced a bit of history that was chronologically prior,” he says. “In financial markets there’s always a mechanism to correct an attack. In a blockchain there is no mechanism to correct it — people have to accept it.”

That is an FT quotation from Robert Sams, the article is interesting more generally, focusing on Wall Street’s attempt to incorporate the blockchain in settlement in some manner.

Babbler birds babble non-babble

by on July 2, 2015 at 1:58 pm in Science | Permalink

A study of the chestnut-crowned babbler bird from Australia revealed a method of communicating that has never before been observed in animals.

The bird combines sounds in different combinations to convey meaning.

The findings could help in the understanding of how language evolved in humans, researchers report in the online journal PLOS Biology.

Co-researcher Dr Andy Russell from the University of Exeter said: “It is the first evidence outside of a human that an animal can use the same meaningless sounds in different arrangements to generate new meaning.

“It’s a very basic form of word generation – I’d be amazed if other animals can’t do this too.”

There is more here.  You will find further coverage here.

Thursday assorted links

by on July 2, 2015 at 12:25 pm in Uncategorized | Permalink

1. Paul Krugman on Puerto Rico.

2. Dan Klein interviews Arthur Melzer on esoteric writing.

3. Lyft vs. Uber.

4. Trade between guards and prisoners.

5. The world’s tallest cow dies after a lifetime of Photoshop accusations (recommended).

6. Economic growth in ancient Greece.  The truth about modern Greece.  And here is the truth about Syriza.

7. A new (?) argument for additional immigration.

The Greek story is being framed as a battle between the Greeks and the Germans and thus between spending and austerity. But this frame can’t make sense of the fact that, win or lose, large numbers of Greeks will vote for austerity on Sunday.

To understand what’s really going on, listen to this remarkable interview between NPR’s Robin Young and Nikolalos Voglis, a restaurant owner in Athens. The interview begins with a discussion of the crisis. No one has cash or credit and Voglis’s restaurant is basically shuttered. Young then asks Voglis how he will vote on Sunday and he replies, “Definitely, Yes.” Young is surprised, she tries to clarify, you will vote, “even for more austerity?” “That’s right,” he replies.

Following the conventional frame, Young finds this difficult to understand and she pushes back against Voglis with all the conventional arguments. She quotes Paul Krugman saying that the problem isn’t really Greece’s doing, that the IMF and EU are being too tough on Greece, that Greece has done a lot of cutting already and so on. Voglis responds:

We are on the right track but unfortunately the job wasn’t completed. We are a country in the European Community which has the biggest public sector in Europe. And all of us in the private sector spend millions to support the situation. So the only way that Greece can become a true Western country…is to make these reforms.

…Look the main problem in this country is the public sector. There is no other problem. Entrepreneurs here are very, very competitive. We have to let this thing, this monster that we call the public sector, it has to go, it has to finish. This is the main issue.

Many Greeks are sick and tired of the bloated public sector and its corruption, inefficiency and waste. In this frame, the Greek story is not fundamentally about Greeks versus Germans it’s about the Greek people versus their government–the Germans have simply been the vehicle that has brought the Greeks to their kairotic moment.  The Greeks want normalcy, as the Poles did after communism. If the Yes vote wins on Sunday it will be the Greeks voting not just against the current administration but against the entire state apparatus.

A better player for a bad team?

by on July 2, 2015 at 1:53 am in Economics, Sports | Permalink

Kevin Love, in his infinite wisdom, decided to test the free agent market.  At least for a while, it seemed to raise the possibility that he wouldn’t return to the Cleveland Cavaliers with LeBron James.

Courtside critics of Love frequently cite the Coase theorem, especially when criticizing his play this last year for Cleveland.  Arguably Love is a better player on a bad team than he is on a good team.  He scores a lot, but only if he is the primary option on offense; you can see this by comparing his numbers on Minnesota, a poor team where he was a big star, with his numbers for Cleveland, where he was the number three scoring option.  He needs a lot of touches to hone his shooting, which is a kind of scale effect.  He also pulls in a lot of rebounds by neglecting his duties on team defense.  For a poor team, maybe that is OK, because the team defense had serious holes anyway.  For a good team it can wreck the entire plan.

This situation differs from the traditional O-Ring model (clever link there), in which the lesser talented workers hold the more talented worker back.  Here the lesser talented workers allow a flawed, attention-demanding competitor to flourish.

It may sound negative to say a player is more valuable on a bad team, but that is a skill too.  These individuals are perhaps no less virtuous or hard-working than those who are better on a good team.  Michael Adams was better on bad teams (and he played on lots of them), but was hard-working and non-selfish and also widely admired, even though he was too short and weak to hold the line in a good defensive set-up.

There are analogues in business.  Some managers may have special talents in bringing out the best in less talented workers.  Or they may make better decisions when they get to be the real boss of just about everything.  They may need a lot of unfettered experience to refine their skills, and perhaps they’re not so good at collaboration anyway.

Some politicians may be better at running chaotic countries; Nelson Mandela would have been wasted as Prime Minister of Iceland.

Some economists may be of more value in weak departments than in strong departments.  Their generalist skills fill in a greater number of gaps, and perhaps they can bring out the best in weaker students, when better students would find their lack of specialization a bigger drawback.

What are other examples of this phenomenon?

Given that Kevin Love is indeed re-signing with Cleveland, does this mean the knock on him is wrong?  Or is the equilibrium that the Cavaliers will become a worse team?  Or maybe virtually all players are good bargains the year before the salary cap will go up a lot?  Maybe Cleveland re-signed him…because they can?  The rumored deal is for $110 million, tell Coase about that.