Everyone is so excited about the PopTech talk, but no one paid any attention to his op-ed when I recommended it earlier this month.

Earlier, I wrote:

The larger question is, does this crisis demand anything more than our money? Is it just about getting Unstuck and going back to business as usual? After we give everything (again), then what?

Juan Enriquez and Jorge Dominguez wrote in the Boston Globe:

Within the billions of sentences about the financial bailout there is one word notably absent, austerity. All talk is of payments, supports, subsidies, incurring more debt, stimulus packages. The thesis seems to be: If only we spend more the party can go on. True, only if the financial meltdown is a temporary mismatch and dislocation in housing and credit markets. But suppose there is something fundamentally wrong with the US economy. Then spending more will not fix it. Getting the diagnosis right means getting the treatment right. It may save us a trillion or two.

A solution requires the country to begin to spend what it earns, reduce its mountainous debt, and address massive liabilities, restructure Social Security, pension deficits, military, and Medicare. No wonder politicians would rather spend more of your money now rather than address these problems. Because we have been spending 5 to 7 percent more each year than we earn, a forced restructuring, triggered by a currency collapse, would have the same effect on wages and purchasing power that the housing collapse had on housing prices. So let's learn from our Latin and Asian friends and act before it is too late.

What about austerity?

SIR – Can it really be a coincidence that within weeks of the Large Hadron Collider being switched on for the first time (“Off into the wild, blue yonder”, September 13th) a financial black hole has appeared in the universe?

Barclay Price
Edinburgh

See also, this letter to the editor, published in the September 2008 issue of Harper's:

I am a new subscriber, and I find myself perplexed by the lack of context for the doomsday scenario related in the June Readings section ["Fear Review"].

The Reading presents what appears to be a factual affidavit [from one Luis Sancho, about the chances that the earth will be destroyed should the Large Hadron Collider be activated]. Is this a misapprehension on my part? Is this an inside joke that is funny to the editors because you don't believe a word about the danger described? Is your magazine so sophisticated that you would simply report, without comment, the possibility of the careless destruction of the world by a group of scientific researchers?

If this is an example of "tongue-in-cheek" entertainment, I don't find it very funny, and I think you owe it to your less sophisticated readers to explain just what the hell is going on in that laboratory and at Harper's Magazine.

-- Barbara Romano
Upper Darby, Pa.

On Wall Street | Letters | The Economist

Earlier this week, Rick asked:

Why can't we just let the system melt and start over?

It looks like this idea is starting to gain traction:

We need a new banking system. A new banking system takes years to build.

In the last two days I have started to entertain the possibility that the Humpty-Dumpty view is in fact correct.

What is it? Some kind of local trouble?

I fear something terrible has happened.

Do you know what's going on?
Maybe it's another drill.

One thing's for sure, we're all gonna be a lot thinner.

This is *not* gonna work.
Why didn't you say so before?
I *did* say so before.

I find your lack of faith disturbing.

I got a problem here.
Eject!
I can hold it.
Pull up!
No, I'm all right... ahhh!

There's nothing for me here now.

Fearless Certainty, Without A Doubt

"The chant is 'drill, baby, drill,' " she said.

The concept is simple. The exacting execution is not.

Many people with high school diplomas are not ready for college.

We're all people for hire at the end of the day.

Last week, I wrote:

The larger question is, does this crisis demand anything more than our money? Is it just about getting Unstuck and going back to business as usual? After we give everything (again), then what?

Yesterday, Juan Enriquez and Jorge Dominguez wrote in the Boston Globe:

Within the billions of sentences about the financial bailout there is one word notably absent, austerity. All talk is of payments, supports, subsidies, incurring more debt, stimulus packages. The thesis seems to be: If only we spend more the party can go on. True, only if the financial meltdown is a temporary mismatch and dislocation in housing and credit markets. But suppose there is something fundamentally wrong with the US economy. Then spending more will not fix it. Getting the diagnosis right means getting the treatment right. It may save us a trillion or two.

A solution requires the country to begin to spend what it earns, reduce its mountainous debt, and address massive liabilities, restructure Social Security, pension deficits, military, and Medicare. No wonder politicians would rather spend more of your money now rather than address these problems. Because we have been spending 5 to 7 percent more each year than we earn, a forced restructuring, triggered by a currency collapse, would have the same effect on wages and purchasing power that the housing collapse had on housing prices. So let's learn from our Latin and Asian friends and act before it is too late.

What about austerity?

I recall many young men who gained standing by an essay of not more than thirty pages. They won recognition by clear thought and a sharply defined thesis. Today they launch forth in a three hundred page pamphlet that tires the reader with its massive collection of facts. ... No one seems willing to stop short of the German standard by which prestige is gained through bulky volumes that fill yards of library shelves. ... A three hundred page thesis not only does not fit a man to be an economist: it really incapacitates him for work.

To think clearly is to be altruistic. Honors and rewards come only to those who by pen or speech pass along to the public the books and essays it will not read. ... In reality our books are of less consequence than caps and gowns, and I doubt not that universities would profit if they used the money now spent on printing useless books and journals in giving more color and grace to public anniversaries.

I hold that the better the economist the clearer, shorter, and more precise are his utterances ... A book is merely the trail along which its author has gone in his search for clear expression and sharp analysis. This is of great importance to the author, but of little consequence to the reader

Some curmudgeonly remarks about economists and other academicians

Joseph Stiglitz:

Some looking at the U.S. economy's decreasing reliance on manufacturing and increasing dependence on the service sector (including financial services) have long worried that the whole thing was a house of cards. After all, aren't "hard objects"--the food we eat, the houses we live in, the cars and airplanes that we use to transport us from one place to another, the gas and oil that provides heat and energy--the "core" of the economy? And if so, shouldn't they represent a larger fraction of our national output?

The simple answer is no.

The current woes in America's financial system are not an isolated accident--a rare, once-in-a-century event. Indeed, there have been more than one hundred financial crises worldwide in the last 30 years or so ... In the late '90s, for instance, so much capital was allocated to fiber optics that, by the time of the crash, it was estimated that 97 percent of fiber optics had seen no light.

In short, the problem with the U.S. economy is not that we have allocated too many resources to the "soft" areas and too few to the "hard." It is not necessarily that we have allocated too many resources to the financial sector and rewarded it too generously--though a strong argument could be put forward to that effect. It is that too little effort was devoted to managing real risks that are important--enabling ordinary Americans to stay in their homes in the face of economic vicissitudes--and that too much effort went into creating financial products that enhanced risk. Too much energy has been spent trying to make an easy buck; too much effort has been devoted to increasing profits and not enough to increasing real wealth, whether that wealth comes from manufacturing or new ideas. We have learned a painful lesson, both in the 1930s and today: The invisible hand often seems invisible because it's not there. At best, it's more than a little palsied. At worst, the pursuit of self-interest--corporate greed--can lead to the kind of predicament confronting the country today.

Falling Down

George Soros:

The public is asking for an answer to two questions. The principal question is whether the sharp oil price increase is a speculative bubble or simply reflects fundamental factors such as rapidly rising demand from developing nations and an increasingly limited supply, caused by the dwindling availability of easily extractable oil reserves. The second question is related to the first. If the oil price increase is at least partly a result of speculation, what kind of regulation will best mitigate the harmful consequences of this increase and avoid excessive price fluctuations in the future?

Every sequence of boom and bust, or bubble, begins with some fundamental change, such as the spread of the Internet, and is followed by a misinterpretation of the new trend in prices that results from the change. Initially that misinterpretation reinforces both the trend and the misinterpretation itself; but eventually the gap between reality and the market's interpretation of reality becomes too wide to be sustainable.

It should be emphasized that curbing speculation in oil futures would be at best a temporary remedy. It could serve a useful purpose at a time when the parabolic rise in oil prices reinforces the prospects of a recession but it would not address the fundamental problems of peak oil, global warming, and dependence on politically unstable or hostile countries for our energy supplies. Those problems can be solved only by developing carbon-free sources of energy. The imminent onset of a recession, by reducing the demand for oil in the developed countries, is likely to bring some relief from higher oil prices, but that relief will be temporary. It should not divert our attention from the pressing need for developing alternative energy sources, and that will entail higher prices, at least in the early stages.

In the absence of alternative sources, the price of oil is liable to rise indefinitely. Only if we are willing to live with higher prices in order to develop alternative fuels can we hope to see an eventual reversal in the long-term uptrend in oil prices. In contrast to oil and other fossil fuels whose costs of production are bound to rise, the alternative fuels will become cheaper as we discover cheaper and more efficient technologies to exploit them, and will eventually bring down the price of fossil fuels as well.

The Perilous Price of Oil

Imagine that a restaurant, rather than charging $30 per meal, charged 50 cents per bite, with a waiter standing tableside collecting after each chomp. That would be an extremely unpleasant meal. But credit puts a safe distance between the ecstasy of consumption and the agony of payment, and thus makes us feel better.

The death of the credit card economy