Felix Salmon, back in my good graces, has a nice August wrap-up, leading off with Larry Summers’ persuasive take on the debt ceiling disaster—worst deal evah!—and segueing naturally to the price of Bordeaux. Are those crafty chateaux manipulating prices? How French of them! The kicker, according to Felix, is that you can’t short Bordeaux. Better switch to beer?
Afterwords
The takeaway, from Felix’s full column, and his links, is this: a “Great Contraction,” which is what we’ve just been through, and are still in, is so destabilizing—it steps on so many big toes so hard and in so many different ways—that it’s essentially impossible for governments and central banks to follow the “right” policy long enough to turn things around smoothly. According to This Time It’s Different co-author Ken Rogoff, ultimately we have to transfer assets from savers to debtors, and the simplest way for governments to do that is through inflation. Unfair, of course, but who said the world was fair? There are, in theory, “better” ways to make the transfer, but these involve conscious policy, which makes people mad, while inflation “just happens.”
You read it here earlier.
