Monthly Archives: June 2013

The night was ink-black and still as death as Jimbob and Ichiro walked along a deserted street in a town called Confidence. All the other bonds had gone home to bed hours ago, but something was bothering these two. Jimbob was a 10-year US bond by birth and in spirit. He was proud to serve a long tradition of helping the US government to fund bridges to nowhere and ill-advised wars. His companion was Ichiro, his Japanese counterpart. Ichiro was a little less proud and a little more world-weary, but still not ashamed of his duty in life. The two had been friends for almost as long as they could remember, despite the occasional difference of opinion. They had reunited on this dark, still night to carry out a mission both unthinkable and necessary. After hundreds of years of highs and lows, they finally had occasion to visit the Confidence Fairy.

The two bonds had worries, and they no longer knew where to turn to alleviate them–the Confidence Fairy was their last resort. Both of their countries had been rocked by economic crises in the past few years; America by a housing crash and Japan by a sustained period of sub-optimal performance that had lasted close to 30 years already. There were whispers that Japan had sunk into a liquidity trap, and Ichiro could personally attest to this theory by the distinctly liquid feeling he experienced often, as well as his competitive interest rates compared with those more mature than he. He chuckled, recalling how quickly his older brother Haruki, a 30-year bond, had lost his smug attitude as his yields fell and fell. He was now a shadow of a man–still valuable, but as his worth was derived almost entirely from deflationary expectations, much less robust than in old times. In order to restore inflation, the Expectations Imp had been summoned. However, he did not heed the call; he was thought to be in hiding, or possibly deceased.

Now, the bonds had weathered their fair share of crises, but this one was different. They felt the swoosh! of the debt hawks’ wings on their necks almost daily, and everywhere they turned, bond vigilantes lurked in the shadows, ready to take them down. The hawks and the vigilantes were nothing new, but they were growing louder and bolder as the bonds entered a period of mass procreation. Jimbob and Ichiro shuddered as they thought of the way their friends Spiros and Aitor, 10-year bonds from Greece and Spain, respectively, had been exiled from Confidence when they overpopulated the region. They were now allowed only on the periphery, bloated from the starvation and high interest rates that their new home in Confidence Wasteland had engendered.

The deficit hawks’ purpose was solely to reduce the bonds’ numbers and the bond vigilantes only wanted to raise interest rates up to untenable levels, both pursuits that posed existential threats to Jimbob and Ichiro. But these were not the catalyst for their visit to the Confidence Fairy on this dark and still night. In the past few days, the two bonds had caught word of a nemesis so fierce, they knew they could not defeat it on their own: the feral hog. The feral hog had not been created in a vacuum: it was the love child of the dithering of their longtime ally, Ben Bernanke, and the rare stumble of their most specialest frenemy, China. The unholy union had happened by chance, claimed some, in a bar in Dubai–but whatever the circumstances surrounding the creation of the feral hog, it was here to stay. The feral hog was known to act irrationally, and as its first act it had consumed noted rational market theory proponent Eugene Fama in one quick chomp (though were he here, he would surely have a good explanation for it). He will be rationally missed.

Jimbob and Ichiro now had good reason to believe the feral hog was coming for them: the feral hog had caused yields to soar to levels not seen in years (though by no means unsustainable…yet), which had ignited worries of an impending debt spiral. That and they had each received a letter from the feral hog that simply said, “I’m coming for you.” Even worse, the hog was threatening to take their extended family along with them–Ichiro’s cousin Nikkei and Jimbob’s great aunt Dowdie Jones were being held hostage by the feral hog, though it must be said that both are not known for their rationality, even in the best of times. Even so, the bonds knew they must act.

“The night is very dark, Ichiro, isn’t it?” remarked Jimbob glibly as they walked along.

“The night is still, too,” responded Ichiro.

The most boring conversation ever was suddenly interrupted when an enormous bear came lumbering out of the shadows. The two bonds jumped in surprise. Suddenly, the whole street lit up, displaying tables and tables of jam, handicrafts, and fresh meat amid a bustling crowd of bears with baskets, each jostling to get the best deal. Ichiro and Jimbob froze in utter terror. “IT’S A BEAR MARKET!!” they simultaneously cried.

Jimbob and Ichiro ran from the market and did not slow their pace until they saw the reflection of the moon on some gold. They had run outside the city limits, where the Confidence Fairy was said to reside, watching over the bonds from afar. Thinking they had found the elusive Fairy, they tentatively approached the shimmering mass.

“Well, hello there!” a voice exclaimed from the dark, still night air.

Jimbob and Ichiro fell to the ground, absolutely terrified.

“Don’t you two worry–it’s just me, Bitcoin! No reason to be afraid, I will only make you two as redundant as fiat currency will be. No longer will the evil government have control over currency, and no longer will soulless debts like you be allowed to serve the interests of the government and central bank. Crooks!”

Ichiro and Jimbob quickly recovered, smiling wryly as they got to their feet. “Phew!” said Jimbob, “I thought we had come across an actual threat for a second there.”

“Hey! Wait you corrupt instruments of fascism! You are living in a prison as long as you serve the government,” Bitcoin yelled at the two bonds’ backs. “Drat,” he said dejectedly. “Maybe I can inflate myself to pass the time.”

After a long while more, Ichiro and Jimbob reached a small cave. There hung a sign from the cave that read “CF.”

“Oh–this must be the Cystic Fibrosis Association’s headquarters,” mused Jimbob. Ichiro cringed, wondering once again why they were friends. “No, you idiot, that stands for–”

Before Ichiro could finish his sentence, he and Jimbob were whisked into the cave. They stood in the ink-dark and still as death space, desperately trying to see what was right in front of their noses. Suddenly, the light came on and each let out a gasp as they gazed upon the confidence fairy.

Will Ichiro and Jimbob vanquish the feral hog and avoid the death spiral?

Is it just fine if they don’t?

And just who is the confidence fairy?

Stay tuned for the next installment of…Adventures in Interest Rates!


An exchange I had with a friend recently seems especially relevant in light of my recent preoccupation with inequality, social mobility, and meritocracy. A Jay-Z song had just come on and I began to mindlessly extol the virtues of Shawn Carter; specifically, that he makes mad cash every second and that he is the best person ever. I do not normally engage in this type of uncritical praise for celebrities (Mark Carney and Paul Krugman aren’t celebrities, per se…), but on this occasion I was oddly adamant about Jay-Z’s unquestionable awesomeness. I was about to move on to a discussion of Beyonce when my friend interjected that it was disgusting that such rich people could be so wasteful and turn their backs on the very places they had come from.

At first, I was deeply indignant and shocked that anyone would dare cast aspersions on Jay-Z’s integrity–and then she got Beyonce involved! But soon after that, I wondered why in the world I was so approving of people who allegedly rented out an entire floor of a hospital at the cost of 1.3M for the birth of their daughter. (Though to be fair, the Canadian in me is ignorant of the going rates of hospital rooms.) It is likely that not all of the outlandish stories about the couple’s legendary extravagance are true; however, the very culture of popular hip-hop normally requires that stars do some irreverent boasting about one’s net worth:

Beyonce: Got diamonds on my neck, got diamonds on my records.

Jay-Z: “What’s 50 grand to a m************* like me, could you please remind me?”

Though both give back to the community in various ways, many question whether they could be doing more. With all my concern about income disparity, it really did not occur to me that Jay-Z is helping to perpetuate the very situation that I have been lamenting.

Consider that in 2011, the median income for Americans was $50,502. Many US states’ median income was below $45,000–and this is for entire households. Meanwhile, Jay-Z and Beyonce earned a combined $72M from May 2010-May 2011–and that was a slow year. So while 50 grand may be a pittance to Jay-Z, it is more than many Americans earn in one year.

Now I realize that both worked very hard to get to where they are, and that they can be seen to represent an America that occasionally allows for astronomical upward mobility. In other words, they are the embodiment of the American dream.

However, their repeated displays of extravagance and their glorification of money for its own sake underline what I have previously observed: namely, that income disparity is a byproduct of deeply ingrained values that place disproportionate value on certain professions, while forcing others to toil in obscurity and poverty. Harold Pollack sums it up beautifully here, questioning why what a professor does should be valued more than what a tow truck driver does. When we replace “tow truck driver” with “nurse”, and “professor” with “pop star”, we can begin to grasp the absurdity of a compensation paradigm that we ourselves have devised, at least implicitly.

It is easy for me to sit here and say we should change the way we think. Much more difficult is to change a valuation of wealth for its own sake that is almost visceral: I reacted to Jay-Z’s wealth almost instinctively, not conscious of my reasons for idolizing him until I thought it through for a good five minutes. All I would ask is that others do the same, including Mr. Knowles-Carter himself. He speaks eloquently of his humble origins, but maybe that island money would be better spent on effecting positive change in underprivileged communities. Of course, in telling Jay-Z how he should spend his legally earned money I am treading dicey territory, and this is precisely where my inner capitalist begins to argue with my inner class warrior. However, I think it is possible to be both of these things, and I have thought a lot about what that would look like. No clear picture yet, just a fuzzy vision of a less unequal world. And in the meantime, maybe Jay-Z should go into politics–there’s no sense in wasting all that rhetorical fire and unbridled charisma!

Despite all Mexican President Enrique Pena Nieto’s big talk about Mexico’s economy, growth this year has been disappointing. As The Economist points out, this is partly due to one-time events, such as Banco Santander’s listing of its Mexican subsidiary, and partly due to a weak export market. Pena Nieto has been busy drafting reforms that attempt to address Mexico’s vulnerability to global market downturns–a worthy endeavour–and his focus on improving productivity within the country is well-founded. However, there are ways in which he could improve the export sector that would require little more than stepping out into Mexico’s own backyard.

The US, Canada, and China are Mexico’s biggest trade partners, with an alarming 74% of Mexico’s exports going to the US and 53% of imports coming from there. This makes Mexico extremely vulnerable to the mildly erratic whims of the US economy. To further complicate matters, China is also experiencing slower growth, which may take a chunk out of the $5B per year Mexico gets from selling to China. With the exceptions of Colombia and Brazil, Latin American countries all take less than 1% of Mexican exports. By diversifying its export customer base, Mexico could avoid some of the risks that come from putting all its export eggs in one American basket.

The main reason for Mexico’s northward focus is convenience: NAFTA has facilitated trade between Mexico, the US, and Canada. Mexico’s exports to the US have quadrupled since the agreement came into effect in 1994. While Latin American countries would have a hard time matching US demand for exports, it would still be worthwhile to diversify a little. Mexico is not a member of either of the two South American free trade blocs, Mercosur and the Andean Community of Nations (CAN), but these organizations are divided anyway and are weighed down by excessive political strategizing on the part of their members. Ten years ago there was discussion of turning NAFTA into a 34-country free trade area; these talks should be restarted.

Though there will likely always be debate over the economic effects of NAFTA and other free trade agreements, a Latin American free trade area would be significantly advantageous from a political standpoint. Free trade agreements can lead to increased political integration in regions, and Mexico’s increased participation in Latin America would be mutually beneficial. Unlike its neighbor to the north, Mexico has been loth to get involved in countries’ domestic matters. However, the various political crises and power struggles as of late have made it clear that the region needs a stabilizing presence to moderate disputes. Ranging from the comical (a diplomatic crisis was narrowly averted after Uruguayan President Jose Mujica called his Argentine counterpart an “old lady” and her late husband “cross-eyed”) to the serious (Paraguay and Venezuela’s democracies are borderline illegitimate), domestic disputes are increasingly spilling over borders and even affecting trade, as evidenced in Mercosur’s ejection of Paraguay after a suspected coup d’etat and subsequent installation of Venezuela in the bloc.

Latin America is deeply divided economically, with Mercosur and CAN competing for members. It would immensely improve efficiency if all the countries could agree to comprehensive and far-reaching terms under just one trade agreement. It is evident from the diagram above that there are too many acronyms and not enough overlap in the Americas.

Of course, the negotiations would be excruciating, and Latin American states tend to be less tolerant of perceived slights than the US has been; Chavez managed to get away with calling George W. Bush a donkey, but equally colorful allegations against Vicente Fox caused a diplomatic crisis in 2005. More recently, Colombian President Juan Manuel Santos provoked the ire of Venezuelan President Nicolas Maduro by meeting with Maduro’s opponent in the disputed April election, Henrique Capriles. After watching the fallout from the incident, Pena Nieto declined to receive Capriles. While this is in keeping with Mexico’s policy of non-intervention, it is disappointing that the country is not taking this opportunity to participate more actively in Latin American democracies, as many are floundering.

To be sure, Mexico has its own internal issues and is far from a paragon of modern democracy. However, strengthening ties with its neighbors to the south would likely bring increased stability and prosperity to the region, thus decreasing the number of illegal immigrants that pass through its borders on the way to the United States. It certainly will not be easy, but the rewards are worth it. Countries in Latin America must adopt the mentality espoused in the (optimistic) OECD motto: “whatever the weather, we must move together.”

New revelations made by whistleblower Edward Snowden make three things abundantly clear:

1. Nations are so interconnected in a post-globalization world that things like financial crises and government scandals can no longer be contained within borders. TheĀ  far-reaching effects that a housing crash in the United States had throughout the world is attributed to “linkage,” the idea that financial shocks in one country are swiftly transferred to others because of the interconnectedness of modern markets. Financial markets of nations as diverse as Japan, Spain, and Russia were adversely affected, and GDP growth charts for a vast majority of countries show a marked decline around 2008, though the severity of the downturn depended on how big a stake that country had in the US housing market by way of mortgage-backed securities, as well as how much it relied on trade with the US.

Taken together, these charts suggest that we are all in this together. A disaster in one developed country (especially one with the largest economy in the world) has grave consequences both for emerging markets and other developed nations. But what Snowden’s most recent revelations suggest is that technology is creating political linkage among some nations, and that when the abuse of this technology is made public, this creates a domino-like scandal that threatens to seriously discredit more than one government.

The allegations that the British eavesdropping agency GCHQ used unsavory tactics to intercept communications from Turkey, South Africa, and Russia, as well as collaborating with US forces to tap the Russian President’s phone in 2009 should surprise no one; however, it suggests that more countries are probably involved in aggressive surveillance than formerly suspected. (There is now concern in Canada about both the effects of PRISM and the Canadian government’s use of data.) As citizens look to the US and begin asking questions about the surveillance tactics of their governments, the answers they come up with may be far more complicated and, well, scandalous than they imagine.

Of course, the information we receive about this scandal is brought to us via technological means. The ease with which information can be transmitted across the world in seconds is the cause of the linkage in financial markets, and the reason that events in one country now have a far greater impact than before.

2. Snowden’s allegations against the NSA and GCHQ confirm what we already suspected anyway: that regulation has not caught up to the great strides made in technological development in the past 20 years. It is hotly debated whether or not the NSA’s actions were constitutional, and as the GCHQ story breaks, no one seems to know if what they did is legal, or even ethical. This is unsurprising–it’s not like the US Constitution has amendments pertaining to the use of Facebook data by the government, and while the Constitution was meant to be interpreted, things have changed so radically since then that perhaps some new ground rules are needed (though the NSA may have violated the Fourth Amendment, which protects citizens against unreasonable search and seizure).

And as for the ethics of cyber-attacks and use of personal data, I’m pretty sure Kant has a chapter on that somewhere, but I seem to have misplaced it. His Categorical Imperative might give us some useful insight into the moral dilemma posed by a state defending its citizens by infringing on their privacy–Kant hated moral inconsistency and would likely conclude that citizens either have a right to privacy, or they don’t. It’s easy to replace Kant’s famous murderer who asks which way his intended victim went with a vague image of a terrorist and conclude that moral rules cannot be violated even when the outcome is desirable (i.e. the ends never justify the means). Conor Friedersdorf makes some wonderful points about this in his article for The Atlantic.

3. The combination of informational linkage and lack of comprehensive regulation for both domestic and international uses of technology by governments signals that the day is fast approaching when we will need an international regulatory body recognized by every country in the world. It is needed partly due to rampant moral hazard among nations. Mexico bears the cost of lax gun regulation in the US; pollution engendered in one country can adversely affect another; and spy agencies act unilaterally, knowing they won’t be held accountable by their own governments, much less their victims.

While international bodies do exist, they range from mildly ineffective to superfluous, especially in regard to setting badly needed guidelines for information sharing. And how has international law helped in the capture of Mr. Snowden, who has chosen to hide first in China and now in Russia? A scandal involving one security leak now threatens to escalate into a full-blown diplomatic crisis–the butterfly effect has never been so potent! With domestic affairs so radically altered by international affairs due to technological integration, it is imperative that world leaders step up to the task of creating an international regulatory body; if they fail to do so, they may soon lose control of what happens inside their borders, too.

The recent closure of Greece’s public broadcaster, the Hellenistic Broadcasting Corp., or ERT, is just the latest turn on a path that seems increasingly destined to lead to fascism, or at least extremism, for much of southern Europe.

To be sure, in the 1970s the channel was used by the totalitarian government as a means to transmit propaganda, but in today’s Greece, where privately owned media outlets have two settings: dead or dying, it represents one of the last bastions of information dissemination to the public. Upon closer examination of the circumstances that have led to its closure, it becomes clear that Samaras sees this as an “easy” (i.e. less painful than the other options) way to make it to the goal of firing 15,000 civil servants, which was part of the terms under which the “Troika” bailed out Greece. Twenty-seven hundred civil servants have lost their jobs in one fell swoop; while this does indeed go a long way toward achieving the questionable goal of 15,000 firings, one may wonder if it is the best course of action to pump even more unemployed into a floundering economy. Greece’s civil service was bloated, but the government will now have to pay more in entitlements, and now more people will lose jobs because unemployed people make lousy consumers.

But economic concerns are not even the central issue here. The media performs a crucial function in a democracy, and if it is allowed to go silent, a breeding ground for extremism and other undemocratic ghouls will be created. Greece’s third most popular party is already the terrifying Golden Dawn, a neo-Nazi party with xenophobic and fascist inclinations that exploits agrarian Greeks’ ignorance of Greek history, according to the Guardian. Shutting down the ERT will only exacerbate ignorance in the absence of reliable information about national affairs.

The part of this story that stings the worst is that Samaras did not just wake up and decide that the ERT was no longer providing a useful service in the Greek democracy. Samaras has been forced to take this decision by the aforementioned Troika: the European Commission, the IMF, and European Central Bank. Essentially what is happening here is that Greece’s politicians are being forced to take decisions that neither they nor Greek citizens want–this is an egregious affront to Greek sovereignty, as Greece is now being run by groups that Greeks did not even elect!

When countries joined the Euro currency, they explicitly agreed to give up power over monetary policy, thus implicitly sacrificing a small measure of sovereignty. However, recent events have made it clear that in many cases this arrangement means giving up much of their political sovereignty, as when a country falls on hard times and cannot compensate by adjusting monetary policy or devaluing its currency (Greece’s former favorite party trick), it must appeal to the Troika for help and in turn play by its austere rules. Few foresaw a situation quite so acute as the one that has come to pass, in which an inability to control monetary policy erodes entire democracies.

Portugal’s democracy, too, bears the scars of savage lending requirements. After deeming Portugal’s public service sector heavily bloated, its lenders demanded the Constitution be changed in order to facilitate savage cuts. In this scenario, Portugal’s Constitution is an inconvenient roadblock to the implementation of policies that aren’t aimed at helping Portuguese citizens, but rather at convincing lenders that Portugal is atoning for past (perceived) sins. Eurocrats testily call it the “last socialist constitution in Europe,” but what they seem to mean is that there is no market value to a welfare state.

That austerity cuts are so severe that they are ruled unconstitutional (albeit by “socialist” courts) should be a red flag. Perhaps Portugal’s Constitution is idealist; still, it was drafted by elected officials who had a vision of how they wanted their democracy to look, and now it is threatened with being torn apart by eurocrats unconcerned with the well-being of its citizens, just as long as Portugal projects an image of fiscal responsibility. Unfortunately, this puts Portugal in danger of falling prey to right-wing extremists that harness the populace’s discontent with how they are being treated: these are just the conditions that allowed Hitler to take power in the 1930s!

Unfortunately, Euro membership in hard times necessitates giving up more sovereignty than countries bargained for, and the erosion of sovereignty is proving a threat to democracy in some countries. A policy modification may be on the horizon, seen in the IMF’s changing attitude toward austerity and its handling of bail-outs, but it may not be enough. A half-in, half-out mentality by creditor countries must be eradicated–as Draghi did, they too must commit to doing “whatever it takes” to preserve the Euro, giving more and intervening less in countries’ domestic affairs. Though creditor countries are the beneficiaries of the troubled economies of their neighbors, which keep the Euro down and help exports, they must weigh these benefits against the cost of keeping these neighbors (barely) afloat, along with the unbearable consequences of allowing fascism to flourish in the eurozone.

My ongoing job search and the experiences of my friends have caused me to think about the labour market in new and pessimistic ways. After each new rejection, I think, I deserved that job more than any of the other morons who applied. They probably just hired some pretentious cretin. I also think other things that are too profane to write here. But why do I deserve that job? And are the criteria used to evaluate potential employees fair?

It’s a pretty widely accepted fact by now that young people trying to break into the labour market are getting the short end of the stick. Their plight tends to start at the post-secondary level–the cost of education has grown exponentially in recent decades and students now have the debt to prove it. Mother Jones has excellent stats on this. What struck me most from these figures is that student debt has quadrupled in the past decade!! Though it’s easy to blame this on the recession, if you look at the student debt chart on Mother Jones, you’ll see that this trend was well underway years before the crisis struck. I chalk it up to a phenomenon called “post-secondary-mania,” in which getting a degree is a widely accepted ticket to success. If you look at the chart below, it is easy to surmise that the rise of post-secondary-mania, and thus tuition, coincided with North America’s shift from manufacturing to service jobs. In 1980 the US lost 1.1 million manufacturing jobs; now, a degree was paramount to getting one of those fancy finance jobs, hence tuition costs’ meteoric outpacing of inflation:

The mentality behind this rise is that education pays for itself. I recently met with a post-grad adviser in regard to a two year MA program I was considering taking. It focused on international relations, economics, and international organisations. The adviser told me that most of the recent graduates of the program were gainfully employed, but only because they had had connections waiting to employ them even before they entered the program. So how much does a Master’s that won’t help me get a job cost? $18,000 PER YEAR. Awesome. What I took from this experience was the knowledge that, if you’re in, you’re in, and, if not, then no amount of expensive education can get you in. So that’s one thing that people should probably start accepting, if they haven’t already.

Westerners are very fond of the idea of meritocracy, the idea that, with a lot of hard work and skill, anyone can succeed. This is the value that the American Dream represents. However, meritocracy is a fundamentally flawed concept, and one that drew its last breath sometime in the past 20 years.

First of all, true meritocracy can never be a reality, as Simone Brunozzi points out here. There are too many variables and no one starts from the same point. Those who started with less still have to work harder. And there is the uncomfortable question of the definition of merit. If two people start out with nothing and each works hard, one may be more successful than the other because of higher intelligence, increased persistence, or a charming personality. But it is not Person A’s fault that she is not as talented, determined, or likeable as Person B. Both worked hard, but meritocracy dictates that Person B succeed because of traits with which she was born. Is this fair?

Affirmative action policies attempt to level the playing field so that each may have an equal chance to succeed on merit alone. Unfortunately, they do so by acknowledging that people of a certain ethnicity are more likely to have had insufficient education, thereby institutionalising deplorable standards of education while simultaneously shutting out whites who may have gone to those same terrible schools. I agree with the Economist that affirmative action should be scrapped, but only if we can provide better education earlier on, thus ensuring that everyone is given an “equal” opportunity.

Despite all these flaws, the idea of meritocracy is sort of nice. The American Dream served as a great motivator for generations of Americans who believed they could make it through grit and determination. Now, however, social mobility is substantially less than it was in the 1950s (it began declining in the ’80s), and the US lags behind most other developed countries in Mark Thoma’s chart:

This suggests that our current society is not a meritocracy, but rather a mishmash of plutocracy, aristocracy, and nepotism. I say this because the descendents of the beneficiaries of meritocracy are now the ones that benefit from the merit of their parents. They are the ones who can pay for college, and they are the ones who can afford to slave away at the unpaid internships that are all the rage these days. So we have a plutocratic system in the sense that the wealthy are afforded (can afford) more opportunities. We’ve become an aristocratic society in the sense that if you are not born into a family that made its fortune from “merit,” then you are probably not going anywhere. And the labour market is ruled by nepotism and cronyism, now cronyism more than ever. If you don’t know people at the company you are applying for, you can probably forget about working there. It makes sense that people want to hire people that they know would be good employees, but I now see this devolving into people wanting to hire only people that they know, regardless of qualifications.

So I don’t really have the answers to the questions I posed above. Being a descendent of those who succeeded on mainly merit hasn’t helped me much; I chalk this up to me having assumed for too long that I was living in a world similar to that of my parents, and not in a savage jungle where you must kill or be killed. Perhaps meritocracy isn’t as dead as I thought, but rather the “hard work” element of the thing has been replaced by tech-savvy, noisiness and connections. And those who do not adapt must marry rich!

Ollie Atkins / Richard Nixon Presidential Library and Museum

People tell lots of stories about Elvis Presley. One of the most widely told, and my personal favorite, is about the time that he was hanging out with some law enforcement men at Graceland. Elvis suddenly decided he wanted a Fool’s Gold Loaf, an outrageously unhealthy sandwich that a restaurant in Denver sold for the price of 50 dollars. Any normal person would have NOT flown to Denver on his private jet at midnight for a sandwich. However, Elvis was not normal and he did, returning home only after he and his posse, which included the owners of the restaurant that made the Fool’s Gold Loaf and the pilots of his plane, had consumed 22 of the insanely large sandwiches.

I’m not sure why I think about this story so often. I do believe, however, that everyone should have at least one moment in their lives at which they say, “screw it–I’m flying to Denver for a sandwich on my private jet.” The lesson I take from it is one of staring common sense in the face and saying, “not this time, common sense.” Yet, there are times when following a dream at any cost pays, and other times when it does not. Elvis died less than two years after this incident allegedly occurred, probably from a heart ailment caused by years of drug abuse, though the peanut butter and bacon abuse likely didn’t help matters. Was his life worth a sandwich? That’s not for me to say, though I bet those were the best sandwiches of his life that night in Denver.

I’ll ruminate more on this later, but for now I want to get to my list of things economists could learn from the King:

1. Sometimes, combining seemingly incompatible elements makes magic.

R&B+a little bit of country+white man+irreverent gyrating=ROCK ‘N’ ROLL. All the recent discussion about macro models’ limited ability to predict policy outcomes has me thinking thatĀ  economics is in the same place that music was in the early 1950s. We’re all Perry Como and Patti Page, not realising that a simple equation that seems too crazy to work could snap us out of this easy listening purgatory. All that is needed is a humble economist from Tupelo with a dream.

2. When something doesn’t work, don’t do it over and over expecting different results.

I had to include the perfunctory austerity-bashing point. But seriously, this has been going on for longer than many people realise. It didn’t work in East Asia in 1997, it reeeally didn’t work in Germany in the 1930s, and, as Mark Blyth points out, it’s an even worse idea if every country does it at the same time. And so it goes with Elvis’ acting career. He started off slow with Love Me Tender–the best we can say about it is that it wasn’t that bad. This initiated a brief run of mediocrity that ended with the disastrous Kissin’ Cousins. (who am I kidding…every single one before and after Kissin’ Cousins was deplorable!) But still, Elvis soldiered on with his acting career, encouraged (forced) by his drill-sergeant manager, the Colonel. For some economists, the Colonel is their own ego telling them they cannot backtrack on anything they’ve said. They must, lest they find themselves in this situation. Or doing the clam. If that’s not an effective deterrent, I don’t know what is.

3. Innovation is first ridiculed, then canonised

This is an old, old lesson that’s not exclusive to Elvis Presley or economic thought. When Elvis first became popular, there was widespread moral panic over his “obscene” performances, which in retrospect seem amazingly tame. Every innovator first deals with ridicule and reactionary rage, until his/her ideas/actions/invention become accepted facts. Just ask Copernicus! That being said, it is a difficult thing to remember when you are the object of ridicule among your peers. Economists can be especially snooty and tend to staunchly defend their chosen dogma (see above), which greatly hinders progress. Obviously this is not true of all economists, but to those who used to snicker at conferences when someone mentioned Keynes in a lecture: STOP! Don’t be that guy on the wrong side of history who said that thing about having tamed the business cycle…just don’t.

4. Don’t let success change you

I don’t think Elvis was a bad person, but he did many things that I find morally reprehensible. One of the main ones was repeatedly cheating on his wife and expecting that to work out fine. Elvis made the mistake of thinking he was invincible because of past successes that were due in large part to chance. Most investors can empathise with this course of events. Elvis believed that certain things could not happen because of who he was and what he had accomplished–wrong! Economists must ask themselves if the excellent results they achieve are a product of good work, or simply a serendipitous correlation of happy circumstances. Priscilla leaving Elvis amounted to the same catastrophic wake-up call that economists were treated to with the advent of the recession. While one of these events changed history just a liiiiitle more than the other, they were both arguably the product of hubris and a long run of good luck.

Thinking about the sandwiches again, I still don’t know why I like that story so much. It’s an insult to the millions of people who live in poverty, and seems to vindicate the moralising tone Austerians take in regard to countries who are now paying for past excesses.

But maybe it’s simpler than that: it’s the story of a man who wanted a sandwich, had the means to get that sandwich quickly, and did so efficiently, disregarding those who would call his actions bizarre. When you think about it this way, it kind of sounds like a good way for the world to work.