Quote of the Day (Gillian Tett, on Investors and ‘Once-Unimaginable Disasters’)

“Investors need to get better at imagining — and pricing — once-unimaginable disasters. This is hard. No business school teaches students how to model something like a presidential threat to wipe out a civilisation. And the success of the recent TACO trade will undoubtedly make many even more reluctant to do this. But the grim reality is that even if a ceasefire holds in Iran—a big ‘if’—peace looks elusive.”—British columnist and editor Gillian Tett, “Finance: Six Lessons for Investors on Pricing Disaster,” The Financial Times, Apr. 11-12, 2026

Quote of the Day (Lars-Erik Cederman, on Economics and Ethnic Nationalism)

“[E]thnic nationalism tends to attract the most support from those who have been disadvantaged by globalization and laissez-faire capitalism. Populist demagogues have an easy time exploiting growing socioeconomic inequalities, especially those between states’ geographic centers and their peripheries, and they blame ethnically distinct immigrants or resident minorities. Part of the answer is to retool immigration policies so as to better integrate newcomers. Yet without policies that reduce inequality, populist appeals that depict out-groups as welfare sponges will only gain traction. So governments hoping to amp down ethnic nationalism should set up programs that offer job training to the unemployed in depressed regions, and they should prevent the further hallowing out of welfare programs.”— Swiss-Swedish political scientist Lars-Erik Cederman, “Blood for Soil: The Fatal Temptations of Ethnic Politics,” Foreign Affairs, March/April 2019

The image of Lars-Erik Cederman that accompanies this post was taken on Nov. 1, 2018, by AliceRuth11.

Quote of the Day (Andrew Ross Sorkin, on 1929 and Our ‘Sweeping New Age of Financialization and Innovation’)

“We are in the grip of a sweeping new age of financialization and innovation — the boldest transformation in money and investing since the 1920s — that is also driven by the idea of expanding access to markets. Private equity, venture capital and private credit, once the preserve of institutions and wealthy individuals, are now about to be repackaged for the masses, even woven into 401(k) retirement plans. Crypto tokens are being sold as a way to buy slices of private firms like SpaceX and OpenAI, in the gray zone of securities law….

“Yet history offers a blunt reminder: When transformation comes this quickly, it rarely benefits everyone unless it is paired with transparency, oversight and regulation. The dot-com boom of the late 1990s was pitched as a democratizing moment, too, until it collapsed under a wave of hype and fraud. The pattern is familiar, stretching back to 1929: Whenever access expands faster than safeguards, charlatans rush in and ordinary investors are often left holding the bag.”—Financial journalist and historian Andrew Ross Sorkin, “1929 Vibes,” The New York Times Sunday Magazine, Oct. 19, 2025 

Quote of the Day (Robert Heilbroner, on Stopping Inflation)

“Although no single coherent theory of inflation commands the assent of the economics profession, there is a general recognition that inflation is the consequence of a profound and probably irreversible change in the social and political fabric of capitalism. And with this recognition has come a change in attitudes about stopping inflation. The idea of stopping the rise of prices dead in its tracks may still be a popular political slogan, but it has lost credence among economists generally. For short of bringing about a real depression or imposing severe wage and price controls, no one has a credible program for bringing the inflationary process to a complete halt. Instead economists ask How much inflation can we afford? and How can we limit its damage?”— American economist and historian of economic thought Robert Heilbroner (1919-2005), The Worldly Philosophers: The Lives, Times And Ideas of The Great Economic Thinkers, Fifth Edition (1980)

Shortly after this edition of perhaps Heilbroner’s best-known book appeared, Federal Reserve chairman Paul Volcker embarked on what the economic historian called “stopping the rise of prices dead in its tracks.” 

The move, propelled by the 1979 oil crisis, raised the Fed’s interest rate to nearly 20 percent in 1981—shock therapy that finally brought inflation down, but at the cost of a recession, rather than the full-scale depression feared by Heilbroner.

For the next 40 years, the United States enjoyed a respite from rampant inflation, courtesy of deregulation, cheap goods from foreign markets, and technology that Fed Chair Alan Greenspan told Congress in 2005, “elevated the growth of productivity, suppressed unit labor costs, and helped to contain inflationary pressures.”

The situation was so unusual that this February 2018 post from the Federal Reserve Bank of St. Louis worried about the implications of very low inflation.

The pandemic, which resulted in disrupted supply chains from abroad and greater government spending to stimulate the economy, ended what increasingly looks like a holiday from history.

Quote of the Day (John Gapper, on Weakening ‘Old Empires of Coffee, Cocoa and Tea’)

“[T]he old empires of coffee, cocoa and tea are getting fragile amid climate change and the interruption of global trade routes. The price of their weakness is already becoming obvious, and the supermarket shelves may not always stay full.”—Business columnist John Gapper, “How Cocoa, Coffee and Tea Empires Became Fragile,” The Financial Times, Feb. 24-25, 2024

The image accompanying this post, of John Gapper, was taken Oct. 15, 2010, by The Financial Times. 

Quote of the Day (John Lanchester, on Education, Economics, and Democracy)

“It would be a disaster for democracy if this divide [by educational level] were to become permanently entrenched. Democracy depends on an informed electorate; it depends on argument, and that in turn depends on having enough in common to be able to argue. Bankers and the financial elite can’t just talk to each other as if nothing has changed; as if the little people are just going to accept that they can’t follow the big words, so the rich should just keep running things in their own interest. The experts need to set terms for the debate that everyone can understand. So yes, when it comes to economics, language matters.” —British journalist and novelist John Lanchester, “On Money: How Economic Gobbledygook Divides Us,” The New York Times Magazine, Nov. 6, 2016

Quote of the Day (P. J. O’Rourke, on Adam Smith)

“None of us, in fact, take the axioms of Adam Smith as givens — not unless what's given to us are vast profits, enormous salaries, and huge year-end bonuses resulting from unfettered markets, low labor costs, increased productivity, and current Federal Reserve policy. Like the AFL-CIO, France, and various angry and addled street protestors, we quarrel with Adam Smith. If this is to be an intelligent squabble we need to examine Smith's side of the argument in full. The Wealth of Nations is — as my generation used to say when my generation was relevant — relevant.”— American humorist P. J. O’Rourke (1947-2022), On “The Wealth of Nations”: Books That Changed the World (2006)

We don’t know the exact birthdate for the Enlightenment economist and philosopher Adam Smith, but he was baptized three centuries ago today in Kirkcaldy, Scotland.

Normally, to begin or end the workweek, I choose a humorous quote to get their minds off hard days at the office (or, more recently, the virtual office. In observance of this milestone related to Smith, I hoped to find jokes by or at least about him.

As you might expect, the author of The Wealth of Nations and The Theory of Moral Sentiments was not exactly the wisecracking type. Still, you’d hope at least other economists (or maybe someone who played one, like Ben Stein) might have gotten off a joke about his work. But no such luck, reinforcing why economics is known as “the dismal science.”

So the best I could do here was this quote from P. J. O’Rourke.

I don’t think Smith should be regarded as devoutly as many libertarians are wont to do. But I will give O’Rourke this: for someone whose work has influenced the course of the West as that other Enlightenment document that also came out the same year as The Wealth of Nations, The Declaration of Independence, Smith’s work does indeed remain relevant.

I should say here that I particularly like this Smith quote I noted in a prior post.

(For a vigorous attack on the belief that Smith accepted inequality as a necessary tradeoff for a more prosperous economy, I urge you to read Deborah Boucoyannis’ 2014 post on the “Politics and Policy” blog of the London School of Economics.)

TV Quote of the Day (‘Yes, Prime Minister,’ As a Financial Crisis Convulses the British Cabinet)

[James Hacker asks Sir Humphrey Appleby about a financial crisis.]

Hacker [played by Paul Eddington]: “Why the sudden crisis? The Treasury must've seen it coming.”

Sir Humphrey [played by Nigel Hawthorne]: “Prime Minister, I'm not the Permanent Secretary to the Treasury. You must ask Sir Frank.”

Hacker: “What would Sir Frank say?”

Sir Humphrey: “It is not for a humble mortal such as I to speculate on the complex and elevated deliberations of the mighty. But in general, I think Sir Frank believes that if the Treasury knows something has to be done, the Cabinet shouldn't have too much time to think about it.”

Hacker: “But that's an outrageous view!”

Sir Humphrey: “Yes, indeed. It's known as Treasury policy.”

Hacker: “Suppose the Cabinet has questions?”

Sir Humphrey: “Well, I think Sir Frank's view is that on the rare occasions when the Treasury understands the questions, the Cabinet doesn't understand the answers.”— Yes, Prime Minister, Season 1, Episode 5, “A Real Partnership,” original air date Feb 6, 1986, screenplay by Antony Jay and Jonathan Lynn, directed by Sydney Lotterby

Surely at this point, the above dialogue makes for uncomfortable listening for the Conservative Party grandees in charge—sort of—at Downing Street these last few years—particularly now that the Bank of England, setting its biggest rate hike in 33 years, warns that the UK could experience its longest recession in 100 years.

And we Yanks think we have it bad..

Quote of the Day (John Maynard Keynes, on Wealth Inequality)

“I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition. Moreover, dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative. But it is not necessary for the stimulation of these activities and the satisfaction of these proclivities that the game should be played for such high stakes as at present.”—English economist John Maynard Keynes (1883-1946), The General Theory of Employment, Interest and Money (1935)

Quote of the Day (Paul Krugman, on Fear and Cryptocurrencies)

“Bitcoin and its rivals now have a combined market valuation of more than $1 trillion. What do investors think they’re buying?

“One answer is protection against the perennial fear that governments will inflate away all your wealth — as a recent Bloomberg article put it, some billionaires are buying crypto in case money ‘goes to hell.’ Indeed, there have been 57 hyperinflations in the world that we know about. However, they all took place amid political and social chaos; do you really think that in such an environment you’d be able to get online and cash in your Bitcoins?”—Opinion columnist and Nobel Economics laureate Paul Krugman, “Crusading for God, Family and Bitcoin,” The New York Times, Jan. 11, 2022

What’s with Bitcoin and its brethren cryptocurrencies, anyway? (I use “brethren” advisedly; considerable testosterone is being expended in the pell-mell push to adopt this relatively new type of financial exchange.)

Some would argue that this is an excellent financial innovation and that there’s nothing to worry about. But I wonder how much this is turning into not a financial innovation, but a financial fad. As of this month, there were more than 8,000 cryptocurrencies in existence, according to an article in coinmarketcap.com.

How much does the average investor know about cryptocurrencies, aside from the fact that they’re supposed to be The Next Big Thing? Are all of these on the level?

By the time this gets sorted out, I’m afraid that many people are going to lose their shirts. For a foretaste of what this will be like, look no further than the class-action lawsuit against Kim Kardashian, Floyd Mayweather, and Paul Pierce for their alleged involvement in a “pump and dump” scheme involving EthereumMax, a cryptocurrency that is a “speculative digital token created by a mysterious group of cryptocurrency developers.”

Don’t go looking for guidance from the federal government on this, either. Aside from the fact that partisan gridlock is preventing much of anything getting done these days on Capitol Hill, let alone financial regulation, Gahyun Helen You’s recent article in Foreign Policy Magazine makes for scary bedtime reading when it notes, “The ability of these digital currencies to undermine control of the monetary system and thus erode sanctions power presents a particular risk to the United States. Absent decisive action, the U.S. market may instead be governed by foreign frameworks.”

In 1720, the “South Sea Bubble” sparked what is often considered the world’s first stock-market crash. Even Sir Isaac Newton, the cranky scientific genius who, as England’s Master of the Mint, helped to curb much of the nation’s rampant counterfeiting, got caught up in the bubble. If a smart guy like that could get taken in, what are the odds of you and me not becoming suckers with our version of this scam today?

We’re about to learn if we’ve learned anything at all about financial speculation over the last three centuries—or if future economic histories are going to talk about “The Bitcoin Bubble.”

(The image accompanying this post, showing Paul Krugman at the Brooklyn Book Festival, was taken Sept. 12, 2010, by Shankbone.)

Quote of the Day (John Maynard Keynes, on the Fallout From WWI and The Failed Treaty of Versailles)

“If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.”— English economist John Maynard Keynes (1883-1946), The Economic Consequences of the Peace (1919)

John Maynard Keynes, who died of a heart attack 75 years ago today, may be best known for the school of economics named after him, which holds that, because free markets lack the self-balancing mechanisms to produce full employment, state intervention is necessary to stimulate demand and stabilize the economy.

That notion, in its different forms, guided mainstream U.S. economic thinking from the New Deal to the rise of Reaganism, and has been enjoying something of a revival not only in the Biden administration’s economic program but even the tax cut passed under Donald Trump (as noted by David J. Berger in a May 2019 article for The Hill).

Keynes’ American disciple John Kenneth Galbraith, in a 1984 essay for The New York Review of Books, called him “by far the most influential economist of this century and, with [Adam] Smith, [Karl] Marx, and possibly [David] Ricardo, one of the three or four greatest economists who ever lived.”

But long before he formulated this influential theory, Keynes had become famous for immediately grasping how the vengeful and power-obsessed victors of WWI were sowing the seeds for an even more devastating conflict. He had attended the peace conference at Versailles for ending World War I as the senior Treasury member of the British delegation. 

But the more he watched, the more appalled he became at the blindness of the “Big Four” allied victors in imposing punitive war reparations on Germany.

Having failed to scale back this insistence on what he termed a “Carthaginean peace,” Keynes departed the proceedings in disgust, then worked furiously in a farmhouse for two months on what became the bestselling The Economic Consequences of the Peace.

Time has not dimmed the power of his fury at the madness of the allies’ four leaders—Britain’s David Lloyd George, America’s Woodrow Wilson, France’s Georges Clemenceau, and Italy’s Vittorio Emanuele Orlando—for not recognizing “the fundamental problems of a Europe starving and disintegrating before their eyes.”

Virginia Woolf’s husband Leonard wittily but aptly dubbed the economist “Keynessandra.” The problems of the following two decades after his manifesto—hyperinflation (“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”), periodic economic failures, nationalist resentment, political extremism, and another war—proved the wisdom of his vision.

It is also worth remembering Keynes’ unheeded call for an America that would resist the urge to retreat into postwar isolationism:

“But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilization of all mankind?”

Keynes is the bane of libertarian economists for his belief in activist government. (You can find a succinct, and sometimes on-target, summary of such skepticism in Madsen Pirie's June 5, 2019 blog post on the Web site of the Adam Smith Institute.) 

But the economist was hardly opposed to investing in markets. At the time of his death, his assets totaled $30 million in today’s money, with much of that derived not from his decent-selling books but through value investing.

As noted in Philip Delves Broughton’s recent Wall Street Journal review of Justyn Walsh’s Investing With Keynes, Keynes was “a kind of proto-Warren Buffett, a diligent savant who could crunch the numbers, discern the qualitative aspects of a toothsome investment and remain unflustered by the churn of the markets.” Not a bad prescription for surviving a bubble prosperity.

Quote of the Day (Anne Case and Angus Deaton, on a Different Epidemic—‘Deaths of Despair’)

“The epidemic of deaths of despair in the United States neither was nor is inevitable, but other rich countries are not guaranteed to have immunity from this American disease. For now, the United States is something of an anomaly among wealthy nations, a status it owes to specific policies and circumstances. But other countries may find themselves following in American footsteps. If wage stagnation persists in Western countries and if the use of illegal drugs grows, the social dysfunctions of the United States could well spread in a more concerted way. Working classes elsewhere are also grappling with the consequences of globalization, outsourcing, and automation. The dynamic that has helped fuel the U.S. crisis of deaths of despair—of elites prospering while less educated workers get left behind—may produce similar devastating results in other wealthy countries.”— Anne Case and Angus Deaton, “The Epidemic of Despair: Will America’s Mortality Crisis Spread to the Rest of the World?” Foreign Affairs, March/April 2020

Given the long lead times of print magazines, this article was likely written when COVID-19 still had not devastated the American economy. 

Even with this slightly premature analysis, Case and Deaton present alarming numbers on how, in recent years, the American Dream has proven ever more elusive. Increased “deaths of despair”—a phrase they coined five years ago to account for fatalities caused by drug overdose, alcoholic liver disease, or suicide—have, combined with deaths from heart disease, produced a reversal in long-term U.S. gains in life expectancy at birth from 2015 to 2017. 

Nothing like this, they report, has been seen since—but naturally—“the influenza pandemic at the end of World War I.” How much more pointed might have been the conclusions of Case and Deaton—economics professors at Princeton—if they could have sensed the calamity to come.

In a globalized economy, it doesn’t take long for an epidemic—whether a fast-acting medical one or a more slow-moving, metaphorical demographic one—to jump borders.

 

Case and Deaton trace the roots of this crisis partly to the disappearance of good, well-paying jobs and partly to the high cost of health care. Rather than the wholesale state interference with the economy advocated by the likes of Bernie Sanders and Alexandria Ocasio-Cortez, they advocate “public policy that raises wages and builds a more comprehensive social safety net,” especially as it relates to regulating the current out-of-control health-care system. 

In the current era of extremist positions right and left, the authors’ proposals may strike many as nothing unusual. But their explanation of this crisis long in the making is detailed and compelling. As Linda Loman warned her sons about the tragedy befalling her husband in Arthur Miller’s Death of a Salesman: “Attention, attention must be paid.” 

Nobody knows yet just how extensive the psychological fallout from the worst American economic downturn since the Great Depression will be. But does anyone doubt that it will produce more than its share of new Willy Lomans?

(One fictional example of a “death of despair” was the title character of the Roseanne reboot, pictured here. That plot development may have been triggered by toxic comments by the series’ controversial star, Roseanne Barr, a year and a half ago. But Roseanne Conner’s death—which, her shocked family discovers, resulted from an accidental opioid overdose—was very much in keeping with a show that, in its original nine-year original run, was at pains to show how close to the edge the blue-collar Conners came to falling victim to larger forces beyond their control.

Song Lyric of the Day (George and Ira Gershwin, on Dating and "The Economic Situation")

“I’m tired of keeping up with the economic trends

And the universal problems that perplex;

Oh, tell me where I can find a man who condescends

To show an int’rest in sex.”—"The Economic Situation," music by George Gershwin, lyrics by Ira Gershwin, in Ira Gershwin: Selected Lyrics, edited by Robert Kimball (2009)

For The Ziegfeld Follies of 1936, George Gershwin (1998-1937) and brother Ira (1896-1983) had “Miss Gherkin” (a young Eve Arden) and a group of chorus girls lament the terrible impact of hard times on their love lives. It’s not so much that anxiety and overwork lacerate the male libido, but rather that politically active intellectuals now show no interest in them whatsoever. 

I really had to chuckle, though, when I came across this couplet: 

“You’re looking your best, but he hasn’t noticed

For you’re up to your neck in the Taxpayers’ Protest.”

How did the Gershwins anticipate the Tea Party movement of the last decade?

Leave it to the wise, witty and brilliant brothers to make the nation chuckle even during the Great Depression.

This Day in Economic History (‘Black Tuesday’ Kicks Off Great Depression)

Oct. 29, 1929—Only five days after Wall Street trembled before righting itself, the New York Stock Exchange collapsed. The 16 million shares sold at declining prices not only made this “Black Tuesday” but also, for all intents and purposes, the start of the Great Depression. 

In contrast to prior economic contractions, which lasted only a year or two, the Great Depression was far more protracted—not really ending until the arms ramp-up just before Pearl Harbor—and far more devastating, putting one-quarter of the American workforce on the unemployment line simultaneously. 

It is well-known that, in effect, it thrust the federal government into a more interventionist position in relation to the economy. But not as many Americans realize that the Depression opened the country up to dangerous forces in a way never seen before. More Americans than ever before were willing to at least flirt with the idea of Communism, and in Louisiana, Huey Long made the entire state dance to his will.

Perhaps somewhat less surprising, my predominantly U.S. readership may not realize the impact of the Depression on other nations, starting with north of the border in Canada, a downturn chronicled by historian Pierre Berton in The Great Depression: 1929-1939. New Zealand, Australia and the United Kingdom also felt the blow. Worst of all was Germany, where voters in the already weak Weimar Republic looked increasingly toward, then embraced, the Nazi Party.

Critic Edmund Wilson called his account of the early stage of the downtown The American Earthquake. But if the noun in that title applies domestically, the case of Germany suggests that yet a stronger term might be required to depict the political damage in that country, where people sought simplistic solutions, then moved to wipe out the most vulnerable in their society. 

I will not rehash what happened on Black Tuesday. If you want a vivid narrative of what happened that fateful day, you can turn to economist John Kenneth Galbraith’s The Great Crash: 1929.  What I really want to do is consider: could it happen again?

In one sense, it already has—in the 2007-2009 Global Financial Crisis (GFC). Much ink has been spilled about how Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, mindful of what happened in 1929, prevented a complete economic meltdown.

But what happened was bad enough. Consider some of the consequences of the crisis in the decade since, here and abroad:

*largely anemic economic growth;

*a whole cadre of the unemployed who, toward the start of the recession, became jobless for so long that they ended up out of the workforce for good;

*the hollowing out of the middle class; 

*a resentment of government bank bailouts that, in part, sparked the Tea Party movement;

*scapegoating of immigrants.

In the July/August issue of Foreign Affairs, Gillian Tett, an editor at The Financial Times, laid out the results of the “Faith-Based Finance” of a dozen years ago—how a mystical conviction about new technology, for instance, not only led to a round of Wall Street delusion, but could be repeaed:

“It would be foolish to imagine that the lessons of the crisis have been fully learned. Today, as before, there is still a tendency for investors to place too much faith in practices they do not understand. The only solution is to constantly question the basis of the credit that underpins credit markets. Just as there was in 2007, there is still a temptation to assume that culture does not matter in the era of sophisticated, digitally enabled finance.”

In a sense, Galbraith had anticipated this in 1954, when his highly acclaimed history of the Great Crash appeared. Although much of the book brimmed with ironic reflections on the comeuppance of Wall Street a quarter-century before, he became considerably more sober in the introduction to his 1961 edition:

"Someday, no one can tell when, there will be another speculative climax and crash. There is no chance that, as the market moves to the brink, those involved will see the nature of their illusion and so protect themselves. The mad can communicate their madness; they cannot perceive it and resolve to be sane. There is some protection so long as there are people who know, when they hear it said that history is being made in this market or that a new era has been opened, that the same history has been made and the same new eras have been opened many, many times before. This acts to arrest the spread of illusion. A better sense of history is what protects Europeans if not perfectly at least more adequately from speculative excrescence."