Why the Debt Crisis Is Even Worse Than You Think

BusinessWeek:

An honest assessment of the country’s projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse.

There is some hope:

The good news is that this speeding vehicle does have brakes—if Washington would only use them. Eliminating deductions would broaden the base of income that’s subject to taxation and increase revenue. On the spending side, it’s crucial to change the incentives that lead to overconsumption and inefficiency in health care.

The bad news is that putting on the brakes requires Congress to stop acting like blithering idiots, and blithering idiocy shows no sign of falling out of fashion in Washington -- or the nation at large for that matter -- any time soon.

And that's the way it is...

With apologies to Walter Cronkite. From The Economist:



The Cronkite link has this telling excerpt:

"The first night up, he ended the show by saying, I'm paraphrasing, 'That's the news. Be sure to check your local newspapers tomorrow to get all the details on the headlines we are delivering to you.'"

That didn't fly.

"The suits -- as we used to call them -- went crazy," Socolow told CNN, referring to CBS executives. "From their perspective, Cronkite was sending people to read newspapers instead of watching the news. [Emphasis added.] There was a storm."

CBS News President Richard Salant met with Cronkite, who initially resisted, then agreed to change his sign-off, Socolow said.

"In the absence of anything else, he came up with 'That's the way it is.'"

Oh, the horror! People reading newspapers! It's a wonder civilization survived long enough to see the advent of television. (Whether it will survive the advent of television is still an open question.)

I'm in good company

JP Morgan's CEO agrees with me:

"No one … could possibly say that there is no chance of a catastrophic outcome" JPMorgan Chase CEO Jamie Dimon told analysts last week.

The more likely scenario that investors are preparing for is that a temporary deal is struck to lift the debt ceiling. But such a makeshift plan is unlikely to allow the U.S. to maintain its AAA grade with bond rating companies. Citigroup analysts say the odds are 50-50 that the U.S. will be demoted to an AA rating for the first time ever.

Such a downgrade could lead to a temporary market panic

A one-week reprieve?

The NYT reports that the U.S. apparently has some cash hidden in a mattress.

Why I'm worried

I want to be very clear about exactly what kind of alarm I'm raising. We are not headed inexorably towards global economic catastrophe. We are heading for a global catastrophe if Congress does not raise the debt ceiling before August 2 (or thereabouts -- there is some disagreement over the exact timing, but it doesn't matter. We actually will reach the point of no return earlier than that.) So avoiding catastrophe (for the time being) is very simple: raise the debt ceiling. That's it.

Normally this would not be an issue at all. The debt ceiling has been raised 90 or so times since it was first created back in WWI. What's different this time is that we have an opposition party in Congress that is determined to see to it that Obama is a one-term president by any means necessary. Against this we have a president who looks back as a role model on Bill Clinton successfully standing up to Newt Gingrich in the mid-90's. And we have a ticking clock. That is a very dangerous combination.

The other difference this time is that the stakes are much, much higher. Shutting down the U.S. government is a colossal pain in the ass, but ultimately not a long-term problem. Defaulting on the debt, which will happen if the debt ceiling isn't raised, will be vastly worse. It will be be the worst thing that has happened to the world economy since WWII, and possibly the worst in living memory. No one knows. But since WWII, all of the mathematical models that underpin the world's economy are based on the assumption that the U.S. will not default on its debt. If that assumption is discharged, all bets are off. No one knows exactly what will happen, but whatever it is it will not be good for most people. There will be runs on banks, unemployment, foreclosures, that will make 2008 look like the good old days.

I still believe that Washington will ultimately come through and figure this out. But the clock is ticking, and right now things are not looking good. The chances of a worst-case scenario are low, but they are not zero. And the more time goes by the higher the probability becomes, until at some point we will reach a tipping point and by then it will be too late.

Exactly where that tipping point will be is also impossible to determine. Frankly, I'm surprised the markets have not reacted more negatively to the situation. There are two possibilities: either someone out there knows something I don't, or the world is being complacent. There is ample precedent for complacency. Ironically, it is the firm belief that nothing bad will happen that could ultimately prove to be one of the major contributing factors to something bad actually happening. That is why I am sounding this alarm. It's not because I want to be a doom sayer, it's because I'm hoping that if enough people get scared enough and start making enough noise that that will contribute to solving the problem, at least in the short term.

[UPDATE:] For a contrary view, read this. And for a counter-contrary view, see this.

Maybe you don't realize how serious this is

It occurred to me that maybe most people don't actually realize just how serious the fiscal situation in the U.S. is. They have some idea that August 2 is not really a hard deadline, that there are some games that can be played with the books and delaying social security payments and whatnot. If you think this, if you are not seriously worried, you need to listen up because you do not understand the situation.

It is not the case that on August 2 the U.S. hits its debt limit ceiling. The U.S. hit its debt limit ceiling back in May. Since then we've been running on cash reserves. What happens on August 2 is that the United States of America runs out of cash. In the absence of at least some additional short-term borrowing, a default is inevitable. Yes, in the aggregate, there is more than enough money coming in to service the debt, but the timing is wrong. Tax revenues are not a steady stream, they come in sporadically, and the next big batch of revenue is not expected until after the next round of debt payments are due. The U.S. is quite literally living paycheck-to-paycheck, and on August 2 we hit the wall hard.

I hope I do not have to point out the obvious, that if we do hit the wall hard, the result will be that even the sporadic tax revenues will shrink because we will be immediately embroiled in Great Depression II, which will make the first one look like a cake walk by comparison. The actual bankruptcy of the United States of America, that is, a situation where total tax revenues are not enough to cover the debt even in the aggregate, is not out of the question.

On August 3, if Congress does not get its act together, there are going to be a whole lot of folks who will wake up and find themselves with no job, no cash, and very shortly thereafter, no home and no prospects, and they will say, "What the fuck just happened?" Now you know. Tell your friends. Call your senators and congresscritters, ESPECIALLY if they are tea partiers. This is serious, serious shit, folks, and time is running out.

[See my follow-up here.]

This might have some relevance...

The other day I wondered out loud why the federal government was taking such a keen interest in Aaron Swartz and going out of its way to prosecute him for a "crime" despite having no one willing to step up and claim to be the victim. Well, here's a clue:

... [Swartz] worked with Shireen Barday at Stanford Law School to assess “problems with remunerated research” in law review articles (i.e., articles funded by corporations, sometimes to help them in ongoing legal battles), by downloading and analyzing over 400,000 law review articles to determine the source of their funding. The results were published in the Stanford Law Review.

There is no greater crime in the U.S. than posing a credible threat of making powerful people look bad.

(Hm, maybe I'd better be more careful what I say.)

Are we bankrupt yet?

Yeah, pretty much:

Here's one way to express how catastrophically screwed the U.S. government's finances are: If the entire U.S budget were cut to zero, effective immediately—the military, all entitlements, the electricity bill for the Capitol—there still wouldn't be enough money to cover the payments on old debt that come due every day.

[UPDATE:] Some people have disputed Wilson's results. It's important to understand that the U.S. actually hit its debt limit back in May. Since then it has been paying its bills with cash on hand. Yes, there is money coming in, but it's not a steady flow. It comes in batches. You can see the spikes in Wilson's graph. In the aggregate there is enough money coming in to cover interest payments, but because of the way the timing works out, default is inevitable without at least some additional short-term borrowing. This is serious shit. On August 2 we really do hit the wall hard.

Glenn Greenwald to the rescue

I wanted to write something about the Norwegian terrorist attacks but couldn't come up with anything that didn't sound hackneyed. Good thing I have Glenn Grenwald to fall back on.

That Terrorism means nothing more than violence committed by Muslims whom the West dislikes has been proven repeatedly. When an airplane was flown into an IRS building in Austin, Texas, it was immediately proclaimed to be Terrorism, until it was revealed that the attacker was a white, non-Muslim, American anti-tax advocate with a series of domestic political grievances. The U.S. and its allies can, by definition, never commit Terrorism even when it is beyond question that the purpose of their violence is to terrorize civilian populations into submission. Conversely, Muslims who attack purely military targets -- even if the target is an invading army in their own countries -- are, by definition, Terrorists.

As usual with Greenwald, it's worth reading the whole thing.

The government is out of control, part N

I'm starting to lose count of the number of "government spinning wildly out of control" stories I've linked to here. It's shit like this that makes me sympathize with the Tea Party's desire to shrink the federal government:

In 2009, [Eddie Leroy Anderson of Craigmont, Idaho] loaned his son some tools to dig for arrowheads near a favorite campground of theirs. Unfortunately, they were on federal land... [and] the Archaeological Resources Protection Act of 1979 ... makes it a felony punishable by up to two years in prison to attempt to take artifacts off federal land without a permit.

There is no evidence the Andersons intended to break the law, or even knew the law existed, according to court records and interviews. But the law ... doesn't require criminal intent...

Faced with that reality, the two men, who didn't find arrowheads that day, pleaded guilty to a misdemeanor and got a year's probation and a $1,500 penalty each.

...

As federal criminal statutes have ballooned, it has become increasingly easy for Americans to end up on the wrong side of the law. Many of the new federal laws also set a lower bar for conviction than in the past: Prosecutors don't necessarily need to show that the defendant had criminal intent. [Emphasis added.]

These factors are contributing to some unusual applications of justice. Father-and-son arrowhead lovers can't argue they made an innocent mistake. A lobster importer is convicted in the U.S. for violating a Honduran law that the Honduran government disavowed. A Pennsylvanian who injured her husband's lover doesn't face state criminal charges—instead, she faces federal charges tied to an international arms-control treaty.

Sure gets the blood boiling.

Except... wait, this is the Wall Street Journal. The Wall Street Journal is owned by Rupert Murdoch. Rupert Murdoch is not known for adhering to the very highest levels of journalistic ethics. Could it be that there's some, uh. spinning going on here? After all, you can't trust anyone any more.

Last September, retired race-car champion Bobby Unser told a congressional hearing about his 1996 misdemeanor conviction for accidentally driving a snowmobile onto protected federal land, violating the Wilderness Act, while lost in a snowstorm. Though the judge gave him only a $75 fine, the 77-year-old racing legend got a criminal record.

Invoking Bobby Unser sure sounds like it's designed to tug at the heartstrings of the NASCAR set. Could there be another side to this story? Apparently not. The Salon report makes the incident sound even more egregious than the WSJ account, and Salon is not exactly known for its conservative bias.

All of which leads me to conclude that the real problem we have in the U.S. is that we seem to have abandoned every last vestige common sense.

"Shoot the nigger!" is Constitutionally protected speech

So says the 9th Circuit court of appeals (at least if the LA Times is to be believed):

A ... man who posted racial epithets and a call to 'shoot' Barack Obama on an Internet chat site was engaging in constitutionally protected free speech, a federal appeals court ruled Tuesday in overturning his criminal conviction.

Walter Bagdasarian was found guilty two years ago of making threats against a major presidential candidate in comments he posted on a Yahoo.com financial website after 1 a.m. on Oct. 22, 2008, as Obama's impending victory in the race for the White House was becoming apparent. Bagdasarian told investigators he was drunk at the time. [Emphasis added. See below.]

[T]he U.S. 9th Circuit Court of Appeals overturned [his] conviction Tuesday, saying Bagdasarian's comments were "particularly repugnant" because they endorsed violence but that a reasonable person wouldn't have taken them as a genuine threat.

The observation that Obama "will have a 50 cal in the head soon" and a call to "shoot the [nigger]" weren't violations of the law under which Bagdasarian was convicted because the statute doesn't criminalize "predictions or exhortations to others to injure or kill the president," said the majority opinion written by Judge Stephen Reinhard.

Of course, the Times spelled "nigger" as "r-a-c-i-s-t s-l-u-r."

So let me see if I've got this straight. If I say, "I'm going to shoot the nigger," that is a felony threat against the president. But if I simply urge other people to "shoot the nigger" that is Constitutionally protected free speech. Have I got that right?

So does that mean that if Jeb Bush ever ends up in the White House (God forbid) that I can with impunity call on people to "shoot the redneck" as long as I get drunk first? Oh happy day.

Geek corner: A C puzzle

A bucket full o' bits to the first person who can correctly answer this question without actually running the program: what is the output of the following C program:


#include

main() {
unsigned int i = 0;
unsigned short s = 0;
int x = -1;
printf("%d %d\n", x>i, x>s);
}


Hint: It's not "0 0".

More info, particularly in the comments. Sometimes it's a wonder that anyone manages to write working code in C. (That anyone can write working C++ is nothing short of miraculous.)

Obama endorses DOMA repeal!

I've said on a number of occasions that I'm disappointed in the extent to which the policies of the Obama administration have tracked those of the Bush administration. So I have to give credit where it's due: Obama, despite previous waffling, has endorsed the Feinstein-sponsored repeal of the Defense of Marriage Act. That is clearly not something George Bush ever would have done. Kudos!

The government really is wildly out of control

They have indicted Aaron Swartz, one of the co-founders of Reddit, for downloading scholarly articles form the internet:

Shocking news: Moments ago former Demand Progress Executive Director Aaron Swartz was indicted by the US government. As best as we can tell, he is being charged with allegedly downloading too many journal articles from the Web. The government contends that downloading so many journal articles constitutes felony computer hacking and should be punished with time in prison. We disagree.

The charges are made all the more senseless by the fact that the alleged victim has settled any claims against Aaron, explained they've suffered no loss or damage, and asked the government not to prosecute.

I've had firsthand personal experience in how hard it is to get prosecutors to file charges against someone even when there is a victim willing to step up and say they've been victimized. That they would go to the effort of prosecuting someone like Aaron without a victim is simply mind boggling. Either these people are complete morons, or there's something sinister going on behind the scenes.

Here is JSTOR's statement about the case.

The Republican plan

Politico nails it.

This is why I'm worried

I still believe that Congress will figure out a way to increase the debt ceiling, but it's hard to see how it's going to get done in light of facts like these:

[M]any Republican House members are absolutely genuine in their adamant belief that stopping an increase in the debt ceiling -- an archaic relic from World War I -- that has been raised dozens and dozens of times without incident -- is a good way to combat deficits, which they truly believe are about to turn America into Greece. This view seems particularly pronounced among the 87 Republican freshmen (who together account for nearly 40 percent of the entire GOP conference) who were elected last fall. To many of them, the debt ceiling is a new concept; they haven't been in Congress for years, routinely voting to raise it. What's more, many of these freshmen are also convinced that the deficits that so upset them are the result of their own party's unwillingness in the past to stand firm at moments just like this one.

...

Perhaps the best example of the resistance GOP leaders will face when they push a deal comes from Rep. Todd Rokita, a freshman from Indiana. In an interview with ABC News' "Top Line" on Monday, Rokita said that even $4 trillion in immediate cuts -- three times the amount that is apparently now being discussed by GOP leaders -- "may not be enough" to convince him to support a deal. A default, he suggested, could be a good way of forcing the country to live within its means -- "even if the stock market does go down, if the economy does get worse."

You can call this crazy, and maybe it is. But remember: The 4th District that Rokita represents is overwhelmingly Republican. When he was elected last year, it was the GOP primary (which he won with 42 percent of the vote), and not the general election (when he cruised with nearly 70 percent), that Rokita had to worry about. In other words, not only is it likely that Rokita genuinely believes what he's saying about the debt ceiling, it's also likely that he'll be rewarded for it by the folks back home.

Funny thing is, I actually sympathize with Rokita's basic sentiment. But, oh my God, does he (and, more to the point, his supporters) seem to have no freakin' clue what kind of fire he's playing with.

The Tea Partiers are extortionists

If there is any lingering doubt in your mind that a U.S. default would be Bad with a capital B read this. The entire economy of the planet since WWII has been based on the assumption that a U.S. default would not happen. If that assumption is discharged -- and it's looking more likely every day -- then the rules of the game will have to be rewritten from scratch. What the net result will be is anybody's guess, but it's a pretty safe bet that it won't be pretty.

It is this threat of economic armageddon that the Tea Partiers are wielding in order to accomplish whatever it is they are really hoping to accomplish. Exactly what that is is far from clear. They say that they want to shrink the size of government, but their actions belie this.

...the consequences of any default would, ironically, actually increase the size of the government relative to the U.S. economy—the very outcome that Republican intransigents claim to be trying to avoid.

So there are only two possibilities: either they're stupid, or they really want to accomplish something else. Either way does not bode well for the future.

But their actual goal doesn't affect the fact that whatever it is they want to accomplish they can't do it via the normal legislative process. So they have to resort to the threat of economic armageddon with an outcome contrary to their stated goals in order to do whatever it is they really want to do. That is the very definition of extortion.

BTW, I am seriously considering going to the bank and withdrawing a rather substantial amount of physical cash, and I urge you to do likewise. There are two reasons for this. First, in a worst-case scenario, physical cash will be very useful, and if you wait until it's too late you won't be able to get any. And second, if We The People start to pose a credible threat of broad-based run on the banks before it is too late to pull back from the brink, maybe that will knock some sense into these morons.

I still believe that Congress will figure this out and we won't default. Certainly the bond market seems very sanguine about what is going on. But I think the odds are no longer 100% even to an engineering approximation, and that makes me very, very nervous. Because the Tea Partiers just might be crazy enough to take us over the edge.

And if they do, it will be Bad.

The Republican party's number one goal...

According to Kentucky senator Mitch McConnell is (still) to stop Obama from being re-elected. It's not to create jobs, or win the war on terror, or make progress towards energy independence. The single most important thing is to get Obama out of the white house by any means necessary.

Including bringing the country to the brink of default (and maybe even go over the edge -- who knows how batshit crazy these Republicans really are?)

What is most mind-boggling about this (and I have to credit this observation to Senator Al Franken) is not that the Republicans have this goal (which should come as no surprise to anyone) but that they are actually willing to admit it, that they actually seem proud of the fact that they are playing Russian roulette with the economy for political purposes.

A number of normally conservative sources are starting to desert the sinking ship. Even David Brooks has gone so far as to say that the Republicans have "No sense of moral decency." Brooks was referring to their willingness to voluntarily shirk the (by traditional conservative standards) sacred responsibility to pay back debt. But I think there's a case to be made for a much more sinister interpretation of their tactics: the Republicans show every sign of being willing to utterly destroy America's credibility and its economy in order to pander to those who want to -- why mince words? -- get that f******* n***** out of the white house.

If there's a more plausible explanation for their tactics I'm all ears.

[As a side note, I am posting this from an airplane via GoGo in-flight internet. It is truly an amazing time we live in.]

I feel so much better now

Ben Bernanke says the economy will get better Real Soon Now (tm). This is the same Ben Bernanke who just a few weeks ago said the economy was getting worse and he didn't have a clue as to why.

Well, here's a theory: Rupert Murdoch paid negative $4.8 billion in taxes on profits of $10.4 billion. That's right, the U.S. government gave Murdoch $4.8 billion. [UPDATE: Reuters has retracted this report. See the comments for details.]

In other news, the state of California is going to close 50 state parks to help close the state's budget deficit. The move will save $19 million (with an M, not a B).

But we can't raise taxes on Murdoch because that would kill jobs.

You're all wrong!

I've been quite remiss in tending to the Ramblings of late, so thanks to Don for picking up some of the slack. Time constraints have kept me from writing as much as I would like, and the result has been a piecemeal and somewhat incoherent set of posts on my part. But the scope of the issues raised by the current economic situation is so vast that it's hard sometimes not to feel overwhelmed and just throw up one's hands in despair. Surveying the economic and political landscape today evokes in me a feeling somewhat akin to watching the last scene in Raiders of the Lost Ark.

I do believe that at root we probably agree on more than we disagree, but that makes for boring television. So I'll cut right to the chase and say that I think that quibbling over which way the causality ran in 2008 is badly missing the point. The problems we're experiencing right now have been forty years in the making (and there is evidence that the seeds were actually planted 80 years ago). None of the policies that put us where we are today have been changed, nor is there any indication that they will or even could be changed given today's political realities. It has next to nothing to do with Ben Bernanke. My problem with Bernanke is not that this mess is all his fault (it isn't) it's that he's not even pretending to know what's going on and what to do about it, which is the job he's being paid to do.

(That's the thing that pisses me off most about this situation: tons of people are being paid tons of money for being incompetent. I want a piece of that action. I can be more incompetent than any of those clowns, and I'll do it for half what they're making.)

The situation is so complicated that it's very hard to boil it down to a pithy sound bite, but here's my best shot at it: the people of the United States, including, apparently, those at the very top, have fundamentally lost sight of the difference between money and wealth. They think, for example: if I pay more taxes, I have less money, so I'm poorer. If I pay less taxes I have more money so I'm richer. So cutting taxes makes everyone richer. Duh! It's very compelling logic (if you're an idiot), but it is, of course, wrong.

I am reminded of a scene in one of Douglas Adams's books where the smart people on a particular planet that is becoming overcrowded manage to con all the stupid people to emigrate to a different one. Upon arrival on their brand spanking new planet the stupid people decide to declare that leaves are money. Everyone stuffs their pockets full of leaves, and -- presto! -- everyone is rich. They didn't even have to go to the bother of building printing presses!

This is, I am sad to say, the kind of logic that is being bandied about in all seriousness today by people who really ought to know better. The proposition that all our problems would go away of only Bernanke would print more dollars is not so far from the Adamsian proposition that all our problems would go away if only we just proclaimed leaves to be money. That at least would solve the problem of the Fed chairman's obstinacy, wouldn't it?

The problem is that money isn't wealth. It isn't even a proxy for wealth! It's a tool, a technology, and like any technology it can be used to help create wealth, but it can also be used for other purposes, like obtaining power and influence (which some people -- mainly those who have it -- reckon as wealth).

This is the fundamental problem: not everyone reckons wealth the same way. Not everyone has the same quality metric. One of the things that makes money so useful is that it helps catalyze a process by which multiple disparate quality metrics can be mutually reconciled so that everyone gets what they wants. This is the beautiful promise of the free market, that actual wealth can be created out of nothing merely by providing a venue where people can exchange goods and services, and an accounting mechanism that allows the goat herder and a barber to trade 1/10th of a goat for a shave without having to actually go to the trouble of butchering a goat.

No one seems to understand this any more. Certainly the "wizards of Wall Street" don't seem to understand it.

Sub-prime did not cause the great recession. Neither did the great recession cause the mortgage crisis. Both were caused by vast numbers of people buying into the theory that money is wealth, that if you create money you create wealth, that everyone can get rich by stuffing leaves into their pockets. Of course, the details are quite a bit more complicated than that. The reality was more like: the recession and the crisis were caused by vast numbers of people buying into the theory that you could eliminate risk from financial transactions by building up a Ponziesque scheme of derivatives. The problem was then exacerbated when the perpetrators of this scheme were let off, not just scot-free, but were actually rewarded by the government for essentially perpetrating a fraud. (I am speaking here of AIG being forced by the treasury to pay Goldman Sachs 100 cents on the dollar for their credit default swaps in exchange for a government bailout of AIG. It is no coincidence that many of the government officials who instigated this policy were Goldman alums.)

I could go on and on and on. The level of incompetence at the highest levels is truly staggering. Take the ratings agencies for example. They got paid to rate bonds. They gave AAA ratings to bonds backed by sub-prime mortgages that they knew would default. They did this because they got paid by the bond issuer. Then they hid behind the first amendment to evade liability. Again: vast numbers of people getting paid vast amounts of money, not to create wealth, but to actively destroy it.

Go back and watch that clip from Indiana Jones again.

Of course, ultimately the blame lies with the American people. None of this would have been possible without the complacent acquiescence of vast numbers of ordinary citizens. But although the responsibility ultimately lies with them it's hard for me to count these folks as villains. Most people, I think, just want to do an honest day's work for an honest day's pay and leave the complicated stuff to someone else, and it's hard to find fault with that. The wealth of this nation was built in large measure by people with that kind of outlook on life. Those people are not the bad guys.

The bad guys are the intellectual elites in this country who really ought to know better. No one should be allowed to graduate from Harvard or Yale without understanding the difference between money and wealth, and yet the corridors of power in this country are chock full of ivy league grads who either don't get it or don't care. Either way, this mess is their fault.

What caused the recent Great Recession?

[A guest post from Don Geddis]

Ron recently complained about Ben Bernanke. In particular, he shared his own theory of who is to blame for the recent bad US (and world) economy (high unemployment, fall in GDP):

The housing crisis was not an unexpected aberration, it was the completely predictable result of the systematic dismantling of the tax and regulatory regime that was in place in this country since the end of WWII [...] The predictable result was increasing financial instability and economic inequality. Since 2008 we have done absolutely nothing to change the strategic situation so it shouldn't come as a surprise to anyone that we continue to see the same results.

I disagreed with this analysis, and there was some lively debate in the comments.

Scott Sumner (my economist hero blogging at The Money Illusion) has recently posted what I think is an excellent summary of the real issue about assigning this blame correctly:

Progressives tend to blame the instability of unregulated capitalism, prone to bubbles and crashes. Conservatives blame moral hazard created by government insurance and/or policies that tried to get more low income people into housing. But both seem to see the sub-prime crash as the proximate cause of the crisis of late 2008. I think they are both wrong. [...] I’m depressed by almost all discussions of the current crisis, as they all start with the premise that “it goes without saying” that the Great Recession was triggered by financial crisis. No, the Great Recession caused the financial crisis.

It's true that the first obvious sign we all saw, back in 2007, was the bubble in housing prices, and then the collapse of subprime mortgages. But people on "both" sides of the political debate seem to spend all their time trying to pin the blame on what led to the subprime collapse, as though the subsequent (worldwide!) Great Recession was a necessary consequence, once the mortgage crisis began. To avoid such future economic pain (years of high unemployment, low GDP growth), both sides seem to be trying to figure out how to prevent another mortgage collapse. And of course they have wildly different theories on how to go about that.

But Sumner rightly questions the second part of the link. What if it doesn't matter that mortgages collapsed? What if that didn't need to lead to a huge recession? Sure, you can blame the match for starting the destructive wildfire ... but when you see the fully-staffed fire trucks parked right next door, and they decline to intervene to put out the fire as soon as it begins ... well, is the match really the "cause" of the wildfire's destruction?

Sumner himself echoes this in a comment on his own post:

Suppose the helmsman fell asleep at 2:00am. The ship goes of course. Who’s fault is it–the wind, or the sleeping sailor? I say the sleeping sailor.

(BTW: if you want to know the "real" cause of the recession of the last few years, Sumner has convincingly argued that it happened because the US Fed incorrectly allowed nominal GDP to plummet after the mortgage crisis began. In essence, we didn't have enough inflation; the Fed allowed damaging deflation instead.)

Tough call

For $100,000 you can get either one of the last Tesla Roadsters or one of 99 Zafirro Iridium razors. Yes, that's "razor", like the thing you use to shave with.

If the existence of this product isn't proof that some people have waaaaay too much money I don't know what is.