Quotes of the day

The first thing you should do in an emergency situation — once you know it's safe — is smoke a cigarette.--Paul Petzoldt, legendary mountaineer

Captain Bernanke is piloting the USS Nominal Income through the Mediterranean. Suddenly a stiff wind starts blowing off the coast of Greece, threatening to drive the ship onto a dangerous shoal. The captain adjusts the wheel so that the ship is able to maintain its heading. We are safe. For now. A year later the strong wind again blows off Greece, once again threatening to drive the ship off course. But this time the captain fails to react. “We’ve already tried doing steering, once is enough.” “Lots of people criticized my steering last time. They pointed out that the path of the ship didn’t change very much.” “Steering is no panacea, we need to do something about the wind and the shoal.”--Scott Sumner

... a surplus basically represents the government sucking money out of the economy ... The Clinton surpluses didn't protect us from any calamity, and the attendant boom in private sector leverage is what ultimately smashed the US economy. Why do we want to go back to that?--Joe Weisenthal

With lessons learned from the 20th century’s tougher decades, including the Great Depression of the ‘30s and the Great Inflation of the ‘70s, America entered a period of unprecedented economic stability and growth in the ‘80s and ‘90s. Not only were 47 million jobs created, economic growth was more stable than ever before in American history. Economic policy in the ‘80s and ‘90s was less interventionist in comparison with earlier 20th century decades. Attention was paid to the principles of economic and political freedom: limited government, incentives, private markets, and a predictable rule of law. Monetary policy focused on price stability. Tax reform reduced marginal tax rates. Regulatory reform encouraged competition and innovation. Welfare reform devolved decisions to the states. With strong economic growth and control of government spending the budget moved into balance. As the 21st century began many hoped that applying these same principles to education and health care would create greater opportunities and better lives for all Americans. But economic policy went in a different direction.--John Taylor

As a member of a coop board I have learned that the building I live in frequently spends months and even years simply trying to get questions answered from the city about how to proceed with needed repairs. Rich people and established businesses can survive this kind of thing; small businesses with no capital cushion and untrained, perhaps poorly educated proprietors cannot — but these are the only people who can generate the jobs the urban poor so desperately need. The combination of a tangled thicket of regulations that interact with one another in unpredictable ways and a bureaucracy that for whatever reasons cannot manage the process in a timely way is a massive job killer. The number of small enterprises that have not started, of small businesses that have given up on expansions or on simple repair jobs deferred is incalculable but large. Our cities are strangling themselves in red tape; we need to a better job of balancing the legitimate need for safety and health regulation with the need to promote enterprise and the kind of jobs that our fellow citizens can actually get.--Walter Russell Mead

If a budget deal is reached, officials will undoubtedly boast about how much their deal “reduces the deficit.” They will use numbers like $1 trillion, $2 trillion, or even $4 trillion of deficit reduction. You should be wary of such numbers, which are easily gimmicked. In theory it seems easy to calculate such a number:

If there is no deal, over the next 10 years total deficits will be X.
With a deal, over the same timeframe total deficits will be Y.
Therefore, the deal will reduce deficits by X-Y.

The trick is that X is not well defined, and so X-Y is suspect.--Keith Hennessey

Every time a new study comes out, people on both ends of the political spectrum are quick to seize on it as proof of their prior beliefs. But in this area, the proof is usually messy. It rarely tells us exactly what we wanted--and expected--to hear.--Megan McArdle

I'm a fan of VaR, having set up a VaR for KeyCorp's trading operations in the 1990's, and found it immensely useful as a monitor on our positions. Yet, for risk capital, or the risk of the bank in total, it was irrelevant. The assets relevant to this calculation are usually quite small as a percent of total assets (<5%), and often part of market-making operations that generally have pretty flat exposure to big factors like interest rates or the S&P500. Thus, in the past crisis the big 7 US money center banks showed an average daily VaR (99%) of about $120MM in early 2008, and then through March 2009 lost about $7T (trillion) dollars in market cap. Being of 1000x smaller magnitude highlights its irrelevance.--Eric Falkenstein

Statistics are like a bikini. What they present is suggestive, but what they conceal is vital.--Aaron Levenstein

The markets will utimately discipline the politicians, if they don't discipline themselves.--John Malone, on CNBC