Rortybomb writes:

The most innovative product for a financial firm is one that always has volume and, sometimes, always has volatility. Many investors would prefer neither, they would prefer their investments boring. So there’s a clash here.

You'll see so many blog posts and columns talking about the low interest rates and high unemployment of our times, thus arguing in favor of further fiscal stimulus.

So far, these are the least likely arguments you will hear addressed:

1. The monetary authority moves last anyway.

2. We don't need exotic "quantitative easing," we can simply print up more money and hand it out to consumers through a simple vouchers program, at basically zero budgetary cost.  If consumers save all that money, fiscal stimulus also won't have much of a kick.

3. The real fiscal problem is spending contraction at the state level (expanding and contracting spending are not symmetric in their effects; contracting spend hurts more than expanding spending helps).  The correct fiscal policy move would have been, and still is, to take Medicaid away from the states and make it fully federal.  This would give state budgets a huge break, and help employment, yet as a one-time change it reduces the moral hazard problems from ongoing outright grants.  Furthermore federalizing Medicaid is a good idea in its own right and it also could be a spur to make other improvements in the program.

4. Rather than just arguing about the most likely scenario, we should apply the same worst case scenario thinking that is recommended for climate change.

5. Macroeconomics really is just a theory.  Politicians are reluctant to spend more money, in tough times, on the basis of a mere theory.  Advocates of fiscal stimulus make it sound as simple as solving an undergraduate homework problem and I think they sometimes genuinely do not realize how much the rest of the world, including politicians, views them as simply being very convinced by their own theory.  There are plenty of historical examples with confounding factors and I've linked to some of them lately.  One default hypothesis is that the ranges of fiscal policy being discussed, whether looser or tighter, aren't going to matter much one way or the other.  

The next time you read a blog post or column on fiscal stimulus, and it isn't addressing those issues, the correct response is to think that a deeper analysis is needed.  Don't be swayed by the mere repetition of the usual arguments about interest rates, unemployment rates, and the like.

Until now, Berlin has resisted the US-style publication of information about banks’ capital cushions because it feared the results could be manipulated, could send the wrong signals, and break German laws about commercial secrets.

The government’s U-turn is likely to rouse the anger of German banks, which have been in lock-step with Berlin so far in resisting the publication – and under German law they would have to approve any public use of their own data.

Deutsche Bank chief executive Josef Ackermann last week warned that publishing the results of stress tests would be “very, very dangerous” if there were no “backstop facilities” in place to allow stressed banks to draw on new capital.

The full story, which includes information on Spain, is here.  The last paragraph may sound slightly ridiculous to an American reader — why make such an admission of vulnerability?  Yet in Germany privacy norms and laws are quite strong and virtually everyone will grant you the right to assert privacy.  If you are waiting at an ATM, you had better stand very far back, behind the person at the machine, otherwise you will hear about it.  Everyone at the university keeps their office doors closed, although not for the American reason of avoiding students.  The goal is to have a closed door and a private space between you and the rest of the world.  German blog readers who see you in public will talk less to you than would American blog readers.  "Direct mail" is considered not only a nuisance, but also a privacy violation.  People work next to each other for twenty years, and it's still just "Frau Mueller," etc.

How much would you spend for a good night's sleep?

Some people
might say $33,000. That's the price of E.S. Kluft & Co.'s
hand-tufted, king-size Palais Royale mattress and box spring, currently
the most expensive American-made mattress set on the market. The company
says it has sold about 100 since introducing it in 2008.

Or maybe
it's $44,000–the price tag on Kluft's Sublime model, which the company
has teed up for a launch later this year.

…Hästens says it takes 160 hours to assemble this mattress entirely by
hand, which has a Swedish-pine frame with thick layers of horsehair,
cotton, flax and wool inside. The company says since introducing the
mattress in 2006, it has sold 250 of them world-wide.

Laugh all you want, but if I were rich, this is something I would spend my money on.  Given how much time we spend sleeping, most people are oddly unconcerned about the quality of their bed, pillow, and so on.

The full story is here and I thank Eric John Barker for the pointer.

Some of you thought that I was making fun of Germans by scrutinizing one of the local newspapers, the Berliner Morgenpost.  Quite the contrary, the paper is more sophisticated than its American equivalents and furthermore I enjoy reading it myself.  What I am making fun of is people who have unrealistic expectations of how Germany can be slotted into this or that academic plan, without recognizing the realities of national and regional cultures.

Other people have suggested that Die Zeit or the FAZ are more representative of German opinion.  Among elites for sure, but if you walk through Berlin for days you will see the Berliner Morgenpost for sale much more often, by an order of magnitude.

Anyway, I noticed a piece in the 12 June edition, entitled "Germany is driving European economic growth."  What's most striking about thie article, and other sources, is how much Keynesianism has failed to influence either German policy or German public opinion.  In the piece, there is no mention of international imbalances or aggregate demand issues, but rather Germany is lauded for exporting so much and for serving as the economic locomotive for European economic activity.  Furthermore this is a news story, not an Op-Ed.

Germany, of course, is one of the most successful countries in the world since its postwar reconstruction.  (You could make a good case for giving Germany the "best country award" for the last fifty or sixty years.)  Yet German policymakers adhere reasonably consistently to the following views:

1. It is the long run which matters and we should be obsessed with the long run consequences of our choices.

2. Economic growth comes from high productivity, most of all in quality manufacturing.

3. Borrowing to finance consumption is a nicht-nicht.  Savings is all-important.

4. If we need to make a big change, we'll all grit our teeth and do it.  For instance Germany has done a good deal, on the real side, to restore its export competitiveness in the last ten years, not to mention unification and postwar recovery.

5. These strictures should be enforced by rigorous rules, to limit temptation, because indeed you will find cases where it appears to make sense to break the rules.  

6. Values matter, as do norms of cooperation.

7. Don't obsess over the creation of too many low-wage jobs, because in the longer run it will be bad for your cultural capital.  If need be, pay people to be unemployed, but hold high human capital.  In the longer run, try to educate them up to higher productivity and thus employment.

8. Be obsessed with self-improvement, most of all at the personal level.

(If you're wondering, the recent talk about coalition collapse is not challenging these basic principles.  There is talk about not cutting some kinds of government spending, or raising taxes on the wealthy, or whether the ruling coalition can get things done, or whether the draft should be abolished, or whether Germany has mishandled the Euro crisis.  German politics produces a lot of government spending, and that is part of the above vision, but there is a great concern about whether it is paid for in the proper way.)

Most Keynesian economics makes good sense to me, especially at the methodological level.  But when it comes to principles for guiding a country…?  The numbered items above are not exactly my preferred list (especially not for the United States), but they have worked out very well for Germany.  I would not so lightly toss them away.  Might these principles be better, all things considered, than the Keynesian alternatives?

I'm a fan of the northern European social democracies, but in part they succeed because those countries don't follow all of the prescriptions you might hear coming from their boosters in the United States.  For instance American liberals often admire the activist government in such countries, but it's built upon a very different set of cultural foundations.  I hear or read liberals calling for the comparable interventions but usually remaining quite silent about the accompanying cultural foundations or in some cases actively opposing them.

The cultural elements of the current Keynesian debates remain underexplored in the United States, but they are fairly well understood in Germany.