A historical moment

I can't decide which is worse: Obama winning the Nobel Prize for being less of a jerk than that other guy, or the Washington Post noting that the "Twitterati appear perplexed by [the] selection" (on the front page of the website, no less). It appears we've entered an age of lowered expectations, where not being completely incompetent is astonishing, and trivial thoughts even I can come up with win you that the most prestigious of suffixes, -ati.

Phase change

Imagine you're driving on a crowded highway. In theory, speed doesn't matter as long as everyone drives at the same speed. But at some point, a car will slow down because of a road bump, or a moment of distraction. The car behind it will need to react. At 10MPH, this is not a problem. At 100MPH, on a crowded highway, the result is disaster: reaction times are too slow, drivers overreact, and suddenly the fast flowing traffic crashes to a halt.

What is true of traffic is also true of the economy: like speeding on a crowded highway, too much consumer and corporate debt is unsustainable. If A owes B money who owes C money who owes D (and so on), in theory it all cancels out. But if B can't pay, C now needs to find some money to pay D; if the level if debt is too high, a damaging chain reaction occurs. Irving Fisher, who in 1929 declared that "stock prices have reached what looks like a permanently high plateau," later recognized that the plateau was really the edge of a cliff of debt:

Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7. pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause

9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

The need to repay debt causes distress selling of assets and less spending by indebted consumers and companies, which reduce prices, and therefore profits, leading to unemployment... and to even more fire sales and even less consumption in order to pay off debt. The more effort is put into paying off debt, the worse the economy does, and the harder it is to pay off debt. Noticed falling house prices recently?

Consider the following graph, US total debt to GDP ratio (keeping in mind that data before 1950 or so is less accurate). Notice where were in 1929, and where we are now:



If we really are in a debt deflation, then things are not going to get better anytime soon.

Numbers

427: number of books I have borrowed from the library over the past [three]four years. I read most, but not all. I have also bought some unknown number of books.

[$1300]$1000: minimum amount of money the library saves me each year.

237: number of books on my "want to read" list (I use Amazon to track these).

I'd count the number of books on the floor of my room, but that would be both difficult and embarrassing.

Notes from the Future

Actually, notes from Japan. Update: and a counterpoint.

Random links

Shorthand and alternate writing systems

Grid Beam: like Lego for the real world

I'm done

I started taking college classes in September of 1995. After 14 years, three different schools and a continent away, I just submitted my last piece of homework. Barring unforeseen mishaps I will graduate and get my diploma in 3 weeks from the Harvard Extension School.

I <3 the Interwebs

Looking up a reference to a paper in a blog post, I found a summary... on a wiki site devoted to summaries of social science papers.

References:

One R short of a BRIC

Weingast and Marshall: The industrial organization of Congress