Felix Salmon

Insofar as there’s a decline in lending going on these days, it’s a function of both lower demand for credit and of reduced willingness to lend on the part of banks. Bloomberg has a startling datapoint on the demand side:

Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 256 companies that ended last quarter with $518 billion more cash than a year earlier after cutting capital spending by 43 percent.

But hang on a minute. Bloomberg here seems to have taken the S&P 500 and deliberately chosen the companies which raised cash and cut spending, while ignoring those which went the other way. In order to put these latest figures in perspective, I think it would only be fair to run the same exercise for previous years, to see what the equivalent figures have been historically.

What’s more, to the extent that some S&P 500 companies have historically borrowed and spent too much, thanks to abundant credit, it might actually be a good thing that they’re bolstering their cash cushions and moving to a more sustainable footing. Well, a good thing for the companies, anyway. Not such a good thing for employment.

That said, gains in employment have rarely if ever been driven by hiring in the S&P 500. If you want to see bank loans turned into jobs, the key sector to look at is not big companies but small ones. And when it comes to them, I think that the decline in bank lending is much more of a supply issue than it is with the S&P 500. If banks were more willing to lend to small businesses, I think that we would certainly see more loans taken out — and higher employment as a result.

Those of us who have learned to always look at the formerly-obscure U6 underemployment measure on the first Friday of every month have long been shocked at the number of people who want to work full-time but who in fact are working part-time. A new study from Andrew Sum and Ishwar Khatiwada of the Center for Labor Market Studies quantifies the cost of today’s unprecedented levels of underemployment on society as a whole; I can’t find the version that was emailed to me online, but a shorter version is here.

In any case, here’s the bottom-line table from the longer version:

This $148 billion number is a good lower bound for the annual dollar cost of underemployment on society. The true figure will be higher: as the paper notes,

There are other important losses to these underemployed workers, including less training provided by employers to part-time workers, a lower return to future wages from part-time employment today, and lower future earnings.

Barbara Kiviat has noted this too: it’s possible to do serious harm to your lifetime earnings by taking a part-time or temporary job today rather than staying unemployed and looking for a full-time job. But of course many people have no choice.

Barbara also picks up on the other main finding of the report: that the costs of unemployment and underemployment are being borne disproportionately by the poor and the unschooled. And so long as these levels of underemployment continue, inequality in the US is going to continue to deteriorate — with attendant negative effects on overall economic and political health, the echoes of which can be felt for decades after the underemployment problem has gone away.

Creating jobs, then, is the single most urgent task facing the Obama administration — and the president was right to focus on it during his State of the Union address. Whether the government has the ability to do it, however, is another question entirely.

Marco Annunziata has a diagnosis of what ails the PIGS:

Germany has been relying on an export-led growth strategy: With virtually no wage growth over several years, it has rapidly gained competitiveness against most of its European partners, running a substantial current account surplus, which stood at 6.5% of GDP in 2008. As two-thirds of German exports go to other EU countries, it is not surprising that some of them ended up with huge external deficits. With a sharp rebound in international trade now leading the global recovery, Germany sees no reason to change strategy. But Europe, like the U.S., is a relatively closed economy—the bulk of growth for the area as a whole has to be generated by domestic investment and consumption. If Germany continues to compress wages and hence consumption, there are only two possibilities: Either other euro zone members follow suit, in which case the continent will stagnate, or they lose competitiveness, in which case imbalances will be exacerbated. It may seem absurd to suggest that Germany should somehow favor more generous wage dynamics, thereby losing competitiveness, but the alternative at this stage is an unpalatable choice between sustainable stagnation and destabilizing imbalances.

I think that Annunziata has the effects right here, but I do take some issue with his identification of the causes. Yes, Germany is growing through exports, and yes, those exports are mainly to the rest of the EU, and yes, that strategy is succeeding for Germany, if not for the rest of Europe. But no, I don’t think that the key variable here is wages.

It’s true that German wages have not risen over the past few years, but I don’t think that lower wage inflation is the reason for Germany’s export-led success. Germany’s wages are not low, by European standards, and its exports are not cheap. Similarly, “more generous wage dynamics” in Germany would hardly be enough to rescue the PIGS from their plight . Yes, they would mean that German exports get a bit more expensive, but the fact is that German manufacturers aren’t competing with Greek manufacturers in the global market.

As Martin Wolf says, Germany is “the world’s foremost exporter of very high-quality manufactures”, which means that the demand for its goods is highly inelastic. If you want a high-precision medical-equipment component, or high-end music-production software, you want what the Germans are selling, and, within reason, you’ll pay whatever they’re charging — especially when the euro is weak. State-of-the-art optical components aren’t olives, and more expensive machine tools don’t make Mediterranean beach holidays any more or less attractive than they were before.

All of which is not to say that a bit of wage inflation in Germany wouldn’t be a good thing. It’s just that the chief beneficiaries would be the Germans seeing their wages increased, rather than anybody on Europe’s southern fringe. Germany may or may not end up bailing out the PIGS in one way or another. But it can’t do so just by paying its own workers more money.

If you’re snowed in this weekend, I can highly recommend Moe Tkacik’s monster essay reviewing most of the foremost recent crisis books. It’s 8,000 words long, but it’s worth it: Moe put a lot of effort and feeling into this piece, and it shows. For instance, here she is on Gillian Tett, and her glorification of the people who invented the synthetic collateralized debt obligation:

Not content with her own seventy-odd uses of the word “innovation” and its variations over the course of 253 pages, Tett herself likens the team’s invention to “splitting the atom,” “cracking the DNA code”, “the banking equivalent of space travel” and the “financial equivalent of the Holy Grail.” Blythe Masters, a posh 25-yearold who would over the next few months take credit for inventing the credit default swap, would rave later that the concoction of sophisticated new “products” appealed to her not only because of her quantitative background, “but they are also so creative.” And finally: “I’ve known people who worked for the Manhattan Project, and for those of us on that trip there was that same kind of feeling at being present at the creation.”

And here she is on Neel Kashkari:

Former deputy Treasury Secretary Neel Kashkari, when in high school, filled most of his senior yearbook page with a large photo of a Ferrari, superimposing a picture of himself and assorted heavy metal lyrics. Recognition of the disaster’s potential magnitude did not convert to concern, however; according to David Wessel’s book, In Fed We Trust, in early 2008 Kashkari jestingly likened it to the Iran hostage crisis that consumed the 1980 election year, advising colleagues that mortgages, like hostages, were a problem for the “next president.” (A slightly different account in Too Big To Fail has Kashkari reversing this stance, urging Paulson to start lobbying to use federal funds to bail out the mortgage market lest the history books accord Obama all the credit for “bringing home the hostages.” I’m not sure which story makes Kashkari look like a bigger douchebag.)

Tkacik’s review comes from The Baffler, a truly wonderful magazine which you should find and buy; the current issue’s trenchantly leftist take on the financial crisis provides a refreshingly fresh perspective on a subject which can too easily feel very tired. And it has 5,300 words on Thomas Kinkade, too! What’s not to love?

Brett Arends is in London, and, like most visitors, is shocked at the prices for everything from taxis to houses.

If London real estate is buoyed by the uniqueness of the town’s economy, there is a disturbing degree to which the reverse is also true. This is a ridiculously expensive city to visit. I seem to hemorrhage money with every step I take. I was wondering, as I got out of a taxi the other night and severed the requisite two limbs to pay the fare, how I ever afforded to live here all those years.

The answer is, I couldn’t—even though I earned a perfectly good salary. What made a difference was the money I made on my apartment, which doubled in value between 1997 and 2003. Two years after I sold it, in 2005, it had nearly doubled again. Remove this alchemy from the equation of ordinary Londoners, and the bars and restaurants and theaters would be a lot emptier.

It’s not clear to me how living in an appreciating apartment makes it easier to spend money on bars and restaurants and theaters. In the UK, which was never big on home equity lines of credit, Arends could live off his house-price appreciation in essentially one of three ways. Either he could do periodic cash-out refinancings, or else he could take out an occasional second mortgage, or else he could simply rack up revolving credit and personal loans, safe in the knowledge that he could pay off all that debt when he sold his house and moved back to the US.

All of which helps explain the enormous rise in personal debt in the UK: essentially a very large segment of the homeowning population embarked on a mass conversion of home equity to personal debt over the course of the past decade. Since debt is more liquid than home equity, and since liquidity is a key ingredient of bubbles, house prices started soaring unsustainably.

On the other hand, the UK avoided two aspects of the US bubble: the originate-to-distribute business model, which destroyed underwriting standards; and the soaring ratio between the cost of buying and the cost of renting, which is a huge incentive to default when your home equity drops below zero. What’s more, a lot of the housing bubble in central London, as Arends notes, is a function of properties “bought up by tycoons from Russia, the Middle East and elsewhere”. Those tycoons tend to pay cash, and a bubble without debt is relatively harmless.

Arends asks in his piece whether the crisis is really over, or whether there are other bubbles — like London property — which have yet to really burst. It’s a germane question, and I suspect that his worries are well founded, and that there’s a lot more crisis yet to come. My feeling is that there probably is. On the other hand, the next stage of the crisis might well be slow and protracted, as in Japan, rather than chaotic and devastating, as in 2008. The main difference, I think, lies in default rates. If international capital markets are rocked by another big wave of defaults (Greece, or Spain, or California, or commercial real-estate, say), then we could easily slide back into chaos. On the other hand, if all we see is a long and slow decline in property values in countries where homeowners are still able to pay their mortgages, the next stage of the crisis might take a lot longer to resolve.

In The Black Swan, Nassim Taleb explains his barbell investment strategy:

Instead of putting your money in “medium risk” investments (how do you know it is medium risk? by listening to tenure-seeking “experts”?), you need to put a portion, say 85 to 90 percent, in extremely safe investments, like Treasury bills — as safe a class of investments as you can manage to find on this planet.

Today, he’s saying something rather different:

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific.

This is Taleb at his most quotable and least helpful. Of course most human beings shouldn’t get involved in shorting anything. What’s more, Larry Summers actually put on that trade — that long-term interest rates would rise — while he was at Harvard, with disastrous consequences. Even no-brainers can lose you billions.

In any case, if 90% of your assets are in safe Treasury bills and a large chunk of the other 10% is being put to use shorting Treasury bonds, essentially what you’re doing is putting on a curve steepener — at a point in time when the curve is already as steep as it’s been in some time. What’s more, unless you’re extremely leveraged, you’re never going to get rich shorting Treasuries. And I’m sure that Nassim would never recommend that kind of leverage.

Taleb isn’t actually giving investment advice here, although it might sound as though he is. He’s just making a rhetorical point that Bernanke and Summers are bound to make some kind of a mistake in trying to steer the US economy — and that such mistakes are likely to result in higher long-term rates. The problem is that, as we saw during the most recent crisis, every so often an economic disaster results in lower long-term rates. So overall I’d say that following Nassim’s investment advice from his book is definitely preferable to following off-the-cuff comments he’s making in Moscow.

Stephen Gandel has a good, thought-provoking interview with Roy Smith, a former Goldman banker whose book is available in the UK. His way of looking at both bubbles and busts as being driven by liquidity I think has a lot to be said for it:

There is now about $140 trillion in market capitalization in the word’s financial markets looking for investments. That money can now move around very easily. But even if a relatively small portion of that money goes after something — say, mortgages — it can quickly cause a bubble and a crisis. So all this good work we have done in the past few years to make our capital markets more efficient and open has also made them very hazardous, and we haven’t done anything yet to address that problem.

Here’s Smith’s verdict on the history of Wall Street:

The net result has been a positive for users of capital markets, which can be accessed more cheaply than ever before. But the success of the market has resulted in a vast accumulation of capital in tradable form that is now capable of wrecking whole economies. In 2000 and 2007, financial bubbles did great damage, and the monster is still out there.

Up until now, I’ve thought that the harmfulness of financial innovation was largely a function of its role in enabling regulatory arbitrage. But Smith’s idea I think is stronger. Financial innovation, on this view, is in large part the art of turning illiquid assets into liquid assets. And once an asset is liquid, it’s susceptible to highly-dangerous booms and busts.

The point is that it’s pretty much impossible to have a bubble in something which doesn’t have a liquid asset class supporting it. There’s a good reason that the very concept of a bubble is associated with stocks: stocks are one of the most liquid asset classes in the world. The carry trade is essentially the art of creating bubbles in liquid currency markets. The invention of the mortgage-backed security allowed trillions of dollars to flow into the housing market, where a huge bubble formed. There was a veritable frenzy of trading in Dutch tulips, when they were in a bubble. (Can someone help me out with the Japanese property bubble of the 1980s? What was the driving force behind that?)

It’s not like you can’t lose money where there isn’t a speculative frenzy, of course: banks and insurance companies have been going bust for centuries, after misjudging creditworthiness or losing a gamble when some tail event finally happened. And a lack of liquidity can be just as bad as a surplus of it: if a country has exchange controls and high interest rates, a huge proportion of the money in that country eventually ends up being lent in some form or another to the sovereign, which when it eventually defaults can cause massive economic devastation.

But as Smith says, a world with over $100 trillion in liquidity is by its nature a world prone to bubbles: a tiny slosh of that money in a certain direction can cause massively destabilizing effects in formerly-sleepy corners of the market. And the explosive growth of ETFs, which can turn all manner of fixed-income, commodity, and currency asset classes into liquid and bubble-prone stocks, only makes matters worse.

The monster is still out there — and the monster is growing, as sovereigns with trillions of dollars of disposable wealth at their disposal look for asset classes to invest that wealth in, and as Wall Street continues to extoll its ability to corral multi-billion-dollar financing deals by doing clever things in the capital markets. What’s more, it’s far from clear that regulators even have the ability to identify bubbles, let alone to prevent them growing to destabilizing levels. George Soros said in Davos that he loves identifying bubbles and then jumping on the bandwagon and making lots of money. Can anybody hope to stop him?

Michael Pettis does a good job of systematically dismantling this idiotic line from Tom Friedman:

First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves.

In fact, if you decided to short only countries whose foreign exchange reserves reached some large proportion of gross world product, you’d be batting 2 for 2 right now as you started shorting China. First you would have shorted the USA in the 1920s, and then you would have shorted Japan in the 1980s.

Writes Pettis:

It was the very process of generating massive reserves that created the risks which subsequently devastated the US and Japan. Both countries had accumulated reserves over a decade during which they experienced sharply undervalued currencies, rapid urbanization, and rapid growth in worker productivity (sound familiar?). These three factors led to large and rising trade surpluses which, when combined with capital inflows seeking advantage of the rapid economic growth, forced a too-quick expansion of domestic money and credit.

It was this money and credit expansion that created the excess capacity that ultimately led to the lost decades for the US and Japan. High reserves in both cases were symptoms of terrible underlying imbalances, and they were consequently useless in protecting those countries from the risks those imbalances posed.

One of the scariest aspects of the most recent financial crisis is that far from addressing the biggest and most potentially destabilizing global imbalances, it actually exacerbated them. If and when those imbalances unwind chaotically, the global effects will be highly unpredicatable. But it’s far from clear that China will be any kind of safe haven.

Justin Wolfers wonders about what he sees as an economics-reporting arbitrage: given this chart, he says, why aren’t editors and reporters doing a better job of moving resources into economics reporting?

Justin’s list of possible reasons is a good one; I’d add a couple more.

Firstly, the question asks not about what Americans think of reporting on the economy, but rather what Americans think about the reporting on policies and practices of the Obama administration as they relate to the economy. Historically, reporters who understand economics and finance have generally been in New York rather than Washington — while the Wars and Terrorism reporters have been in Washington all along. But if you’re reporting on the Obama administration’s economic policies, you need to be in DC. The move to DC is happening, but it’s maybe not happening as quickly as the public would like.

Secondly, the simple fact is that the Obama administration has been much less good at communicating its economic policy than it has been at communicating its policies on other matters. Tim Geithner is not a great communicator, and the administration’s economic policy in general is very complex: it’s hard to reduce it to a simple choice like “Afghanistan: stay or go”, or “Healthcare: should there be a public option or not”.

More generally, I think the answer to the question is simply a function not of the quality of reporting on the economy, but just of the degree of confusion and anger that Americans have when they look at what has happened over the course of the Great Recession. That’s something that the news media can attempt to address, but it’s a very tough job, and they’re certain to fail with a large amount of Americans a large amount of the time. For all we know, this 40% figure is actually much lower than might be expected given the depth and complexity of the recession.

Still, I hope that the news media will use the results of this poll to increase the quantity and quality of their economic reporting. Right now, you can never have too much.

Emanuel Derman passes on an email from a former student, who’s now working at ****:

Will Sharpe came up with his Capital Asset Pricing Model (which we use at **** all the time, in its most simplistic form) and now it is part of the dogma that asset returns are linearly related to market returns. What is the logical basis to assume a linear relationship here? He could have just as easily assumed a cubic relationship (which will almost by definition fit past data better) and done the same work. His math would have probably gotten messier, but it is hard to find any merits to the linear assumption other than the fact that it is simple. I am all for simplicity, and perhaps if I asked Sharpe he’d tell me that was just a reasonable first approximation, but that is certainly not the way in which people use it now (maybe they are not so rational after all?).

The fact is that **** could be pretty much any buy-side or sell-side firm in the world. And so long as they all talk about concepts like “alpha” in more or less the same way, as though it’s a real scientific thing, in a way it doesn’t matter whether it’s based on empirically-justifiable principles or not. Still, this is a useful reminder that when finance types start blinding you with science, it’s not science in the sense of actually reflecting reality. At best it’s a useful fictional construct, at worst it can help cause a global economic meltdown.

One of the more annoying aspects of the Davos echo-chamber is the way in which people are constantly asking each other what “the mood” is this year; the result is an inchoate consensus that since the crisis is over, markets are up, and countries are growing again, there must be grounds for optimism and the kind of yes-we-can thinking in which the World Economic Form has always specialized.

I’m moving the other way, however, siding with the pessimists like Nouriel Roubini and Martin Wolf. They’re both convinced that the problems of southern Europe are both grave and intractable, although they differ in their prediction of what the consequences will be: Nouriel sees a good chance of the eurozone breaking up, while Martin sees the PIGS (Portugal, Italy, Greece, Spain) staying in the euro and ending up stuck in a long-term slump, able to neither cut interest rates nor devalue their currencies in an attempt to regain competitiveness. The only other option is an across-the-board cut in nominal wages, on the order of 30% or so. That’s something which is pretty much inconceivable, although Ireland seems to be trying to move in that direction.

Of course the one entity which will benefit from this is the Squid: Goldman Sachs seems to be taking the lead in trying to orchestrate a desperate and expensive sale of Greek debt to China. Expect more such desperate moves as the southern European macroeconomy continues to deteriorate; anybody who watched the world’s investment bankers swarming all over Domingo Cavallo in the final weeks of Argentina’s currency board will remember just how vulturish they can be in such situations.

My feeling is that the US poses at least as much of a risk to the global economy as southern Europe does. There’s a good chance that 2010 could be the year of walking away from underwater mortgages; there’s no sign of the private sector releveraging; and the government has clearly reached its limit in terms of the degree it can step in and borrow on behalf of the rest of us. If the attempt to prop up the still-overvalued housing market fails and there’s another downwards lurch, there will be a whole new wave of bank insolvencies and much less fiscal space to bail them out than there was pre-crisis. And the fact that most delegates here at Davos seem blissfully unconcerned about the possibility of a second nasty lurch downwards doesn’t reassure me in the slightest.

Preston Austin has managed to squeeze the economics of a NYT-style paywall into one tweet, but it’s compressed, so let me expand it into slightly more than 140 characters.

The way that it seems the NYT paywall is going to work, visitors to nytimes.com will have a free allowance of n articles per month. To read the n+1th article, they will have to pay a subscription fee F. After that, they can read as many articles as they like for the rest of the month.

If a visitor to nytimes.com normally reads N articles per month, then the key number in their mind will be N-n. If reading that number of articles is worth more to them than F, they’ll pay the fee. If on the other hand N-n is small, or perceived value-per-article is small, then they won’t pay. Specifically, if the average value to the reader of any given article is v, then they’ll pay the fee when v(N-n)>F.

It does get a bit more complicated than this. For one thing, there’s the day-of-the-month issue. If you run into the paywall towards the end of the month, that’s a clear signal from nytimes.com that you’re not a particularly heavy user and therefore not the kind of person who’s likely to get a lot of value out of subscribing. Or, to put it another way, it’s a signal that this month at least, N-n is going to be low. In general, the NYT is unlikely to make much money from people paying the full fee F to read just a few extra articles at the end of the month.

On the other hand, as Jim Surowiecki says, consumers tend to like bundling. From a purely economic perspective, there’s no point in subscribing to nytimes.com before you reach your limit of n free articles. But from a more behavioral perspective, it takes a weight off your mind when you know that you’re a subscriber: you don’t have a little voice in the back of your head asking “are you sure you need to read that?” before you click on any link to nytimes.com. In general, the mere existence of the paywall will make life happier for subscribers than non-subscribers, who will always feel somewhat constrained in how they use the site. For some people, the peace of mind associated with being a subscriber will in and of itself be worth F, even if they don’t read n articles per month.

More generally, it’s pretty clear that v is higher for subscribers than it is for non-subscribers. The value of reading any given article lies not only in the content of that article, but also in the ability to read the non-article components of the web page, to be able to follow links from that page to related or unrelated stories on the rest of the site, and in general to feel at home while visiting the website as a whole.

In his defense of the the meter system, David Carr writes:

By building a metered system, the executives have installed a dial on the huge, heaving content machine of The New York Times. Access can be gradually ramped up or down depending on macro trends in the market.

The implication here is that when advertising is strong, access can be ramped up, and when advertising is weak, it can be restricted, in an attempt to maximize subscription revenues.

I suspect that the main dial here is going to be n rather than F: it’ll be much easier to change the number of articles that people can read for free than it will be to change the price of a monthly or annual subscription. In a way, the best of all possible worlds, from a revenue perspective, would be to launch the new system with great fanfare and a low n, as well as a low annual-to-monthly subscription ratio. Then, when the low-hanging fruit has been picked and you’ve locked in a decent number of subscribers, quietly dial n back to a very high number, so as to minimize the pain caused to non-subscribers, and maximize total advertising revenue.

On the other hand, the experience of the FT suggests that there’s a strong temptation to go the other way: it has been dialing down n to a very low level, as it becomes increasingly addicted to online subscription revenue. It’s a bit like the airline fallacy that charging to check bags increases revenues: it doesn’t, but executives, especially at public companies, have a tendency to look at short-term revenue line-items rather than the bigger picture.

Finally, as John Gapper notes, there’s another calculation going on here: at the margin, implementing an online paywall is a good way of preventing print subscribers from cancelling their subscriptions on the grounds that they can get the same content online for free. (Print subscribers to the NYT will get online access for free, rather than having to pay extra for that, as they do at the FT.) Rather than saving the cost of a print subscription, P, they will now only save P-F. That’s an argument for a high F, of course — but the higher you peg F, the harder it becomes to convert the millions of visitors to your website into paid subscribers.

The NYT is therefore going to have to work out how to maximize revenues in a highly complex and dynamic system: the level of F which maximizes online subscription revenues won’t be the same level of F which maximizes print subscription revenues. And the NYT will also have to think long and hard about how transparent it wants to be about the level of n.

My prediction is that when the NYT paywall arrives, n will be in the 15-20 range, and F will be set somewhere around $15/month and $99/year. What that will do for the NYT’s total revenues, however, I have no idea.

Today’s payrolls report is entirely consistent with the kind of recovery where the employment situation is going to remain grim even if and when corporate profits start picking up. I like the fact that the unemployment rate for adult men, at 10.2%, is down 0.4 percentage points from its October peak. But total underemployment — the famous U-6 — is still extremely and stubbornly high at 17.3%, and the total number of unemployed persons, at 15.3 million, is double what it was at the start of the recession in December 2007.

Manufacturing employment is still falling, while temporary employment is rising; the workweek is still at an all-time low of 33.2 hours. Those workers are going to be asked to put in more hours per week before anybody starts hiring again in large quantities. Meanwhile, the people who hire in small quantities — small and medium-sized businesses — are still largely cut out from the credit markets, which means they have to hire people out of new revenues, instead of creating new revenues by hiring people.

The markets of course are concentrating on the headline payrolls figure, which went down rather than up in December, after going up rather than down in November. That’s a game which is interesting only to traders. The bigger picture, however, is important. And it shows a US workforce which is underemployed and looking at jobs which, when they do exist, are insecure and often temporary. Capital took its lumps in 2008 and the early months of 2009; it then recovered astonishingly quickly. It’s labor which is suffering the real hangover.

Megan McArdle writes that access to credit is good for the poor:

Damon Runyon didn’t just make up the crowded living conditions, the loan sharks, the reliance on pawnbrokers. Those are relics of that golden bygone era when bankers didn’t extend credit to people without solid incomes, substantial assets, or affluent relations. Fewer people got themselves into trouble with a bank, it is true. But there are a lot of worse ways to get into trouble. And as with the War on Drugs, I’m pretty strongly averse to more paternalistic policies which improve the lives of the middle class while making poorer people worse off.

Megan won’t be surprised to learn that I too am averse to policies which make poorer people worse off. But I’m not at all convinced that tightening rules on credit has that effect. Indeed, it seems to me that payday lenders and the like positively thrived during the credit boom — much as India’s moneylenders have thrived and grown even as microfinance institutions in the country have done likewise.

So is there less predatory lending now, from loan sharks and payday lenders and the like, than there was in Damon Runyon’s day? I’d love to see some numbers on that — as opposed to anecdotes from an author who specialized in chronicling the criminal underclass.

Mike Mandel is doing a great job at uncovering telling charts these days. Here’s his latest:

The personal savings rate might be going up, but that’s just thanks to the hundreds of billions of dollars which the government is borrowing and transferring to the private sector to save. (Not the most efficient use of borrowed funds, it must be said.) Overall, the net national savings rate is at its lowest level since the Depression, and it’s falling: it’s now an astonishing -2.5% of national income. Any guesses for when it might be positive again, and who’s going to repay all of this borrowing?