Clive Crook

The Peterson Institute recently staged a debate about the European debt crisis between Simon Johnson and Peter Boone in the pessimistic corner and Fred Bergsten and Jacob Funk Kirkegaard for the optimists. You can watch video here.

In a column for Bloomberg I offer my two cents. I think Boone and Johnson are too gloomy about the short to medium term: I doubt that the euro system is going to collapse this time, despite the amazing dithering of the EU's leadership. It's more likely they'll muddle through, because all parties have so much to lose if they fail. But I don't agree with Bergsten and Kirkegaard that the EU will emerge from all this not just intact but stronger than before. I argue that this crisis will weaken not strengthen the EU's institutions. They are sowing the seeds of the next, and bigger, disaster.

Bill Galston measures the State of the Union against the criteria he suggested yesterday. Interesting observations, but I would have liked to know whether he thought the speech was any good.

Myself, I wasn't much impressed. The speech was far too long (as SoU addresses nearly always are) and well before the end I wondered if anybody who wasn't being paid to listen was still attending. It's a small point but I also find that Obama's thing of letting his voice break for emphasis on key words has become very annoying. It's now a tic. He does it too much and it no longer signals sincerity--rather the opposite.

The theme was "an economy built to last". Bad metaphor. Successful economies aren't castles or cathedrals. They aren't "built to last". They are perpetual works in progress, in a constant state of being unbuilt and rebuilt. And they don't have one master builder.

The lofty rhetoric seemed disconnected from the endless small and mostly humdrum proposals (many of which, I grant you, have a lot to be said for them). There were some bigger ideas too, but they were always left vague. The Buffett rule for instance. All those earning $1 million or more should pay at least 30 percent of their income in taxes, the president said--a good idea, and a deft jab at Mitt Romney, for good measure. But what does "income" mean? You could make the Buffetts and Romneys of this world pay 30 percent of their income from employment and they wouldn't even notice. The same goes for raising the top marginal rate of income tax to, say, 99 percent. On the other hand, tax capital gains and dividends at ordinary income tax rates--as I would favor--and Buffett might wish he had never opened his mouth. Is that what Obama is proposing? Or does he have a second alternative minimum tax in mind--an alternative to the alternative to the main code? For the sake of simplicity.

At the same time, he reaffirmed his commitment to no tax increases on households making less than $250,000 a year. You can't balance the budget that way.

The main thing that made me wince was the emphasis on outsourcing as the greatest threat to American prosperity. In my book, it's a bad idea to criticize firms that strive to drive down costs. Well, you might say, greater efficiency might not be all bad, but we certainly shouldn't subsidize firms to move jobs abroad--and that was Obama's point. Again, what would this denial of subsidy actually mean?

Perhaps it means denying government contracts to firms that outsource, as many Democrats advocate. Perhaps it means taxing outsourcers more heavily. Two points on this. First, using taxpayers' money to buy from higher-cost rather than lower-cost producers would seem to create a subsidy rather than end one. Second, do we really want to victimize Apple that way? No more Macbooks in schools or publicly supported colleges? No more iPhones in the White House? If that would be going too far, maybe just tax the company until it moves to Canada? It seems a high price to pay, even for an economy built to last.

As usual, Bill Galston has some good advice for the president. Including this:

The plight of hard-working, hard-pressed Americans--those struggling to remain in the middle class and those struggling to get there--must be front and center. And the president must address it in the right way. A December 16 Gallup survey found that while 82 percent of Americans believe that it's extremely or very important to expand the economy and 70 percent believe that it's extremely or very important to increase equality of opportunity for people to get ahead, only 46 percent believe that about reducing the gap between the rich and the poor. While 72 percent of Democrats want government to emphasize measures to reduce inequality, only 43 percent of independents agree. And 52 percent of Americans say that "the fact that some people in the United States are rich and others are poor" is acceptable, actually up from 45 percent in 1998. A Pew survey released on December 16 found 58 percent of Americans rejecting the view that America is divided into "haves" and "have-nots." Another Pew survey released January 23rd found 86 percent of Americans giving "top priority" to strengthening the nation's economy and 82 percent to improving the job situation, versus 52 percent for dealing with the problems of the poor and needy. A majority of Americans will support requiring the wealthy to pay their fair share (that is, higher taxes)--but not in the name of reducing inequality. Obama's speech must address middle class anxieties, but without triggering long-standing middle class fears about redistributive measures that could deepen their plight.

Romney's tax returns are a tempting target--not least because Romney himself is evidently so embarrassed by them. (I mean, who would have guessed that all this was going to come up?) Nonetheless, for Obama it's a trap, and for the reasons Galston says.

As I've mentioned before, Douglas Elliott at Brookings is among the most astutue analysts of the financial breakdown and the regulatory response to it. This recent testimony to Congress on the effects of the Volcker rule is the best commentary on the subject I've read.

As I will explain, I believe that the Volcker Rule is fundamentally flawed and will do considerably more harm than good for the economy. I base this on two decades on Wall Street as well as on the years I have spent examining federal policy towards financial institutions at Brookings and earlier at another think tank. Despite being a former banker, my views on the Volcker Rule do not stem from opposition to the Dodd-Frank reforms. Indeed, I am on record as a strong supporter of the overall approach of that legislation, although there are certainly things I would have preferred to see done differently.

My core problem with the Volcker Rule is that it seems to me to be trying to eliminate excessive investment risk at our core financial institutions without measuring either the level of investment risk or the capacity of the institutions to handle the risk, which would tell us whether the risk was excessive. Instead, the rule focuses on the intent of the investment rather than its risk characteristics.

This approach, says Elliott is wrong. What matters is not the bank's intent (insofar as you can measure it), but the level of risk relative to the bank's risk-bearing capacity. What is a "proprietary" investment, anyway? What is "integral" to modern banking and what isn't? Not easy to say.

Moreover...

by focusing on intent, we are almost certain to miss large swathes of investments that are taken on with an acceptable intent, but still represent excessive risk... As a public policy matter, we want banks, even small ones, to hold substantial portfolios of safe and highly liquid securities so that they can meet sudden demands for cash without having to make a fire sale of their loans or other assets... A large portion of the investment losses at commercial banks in the crisis were on their holdings of securities purchased for liquidity purposes. They bought mortgage-backed and asset-backed securities that were rated "AAA" and which were quite liquid until the financial crisis struck and rendered them illiquid. Thus, the intent would have been considered acceptable, but it did not prevent bankers from weakening their institutions by losing large sums of money.

These are good points and the whole (short) note is well worth reading.

Last night's Republican debate will most likely be remembered for Gingrich's assault on CNN's moderator, who kicked off by asking Gingrich to comment on his ex-wife's claim that he'd asked for an open marriage. Gingrich flattened him: that line of questioning was "as close to despicable as anything [he] could imagine". (He's apparently lacking in imagination.) The audience loved it. Down with the lamestream media.

But my own main thought during the debate was to wonder, not for the first time, why Romney even wants to be president. You couldn't call him a natural politician. The others up there all seemed to belong. There's nowhere else they'd rather be. Give them an audience and they'll set the world to rights. But this supposedly new, improved, campaign-polished Romney is still so unconfident, uncomfortable, stammering and inarticulate, you actually feel embarrassed for the guy. He tries to make a virtue of the fact that he isn't a professional politician--despite his pathological longing to succeed in that line of work--and promptly screws that up too. Did I hear him say he's "from the streets"? From the streets?

Remember Bulworth? Coming up next from the Romney campaign, an impromptu rap on tax shelters. The man's got rhythm, no doubt. I hesitate to mention it in case he thinks it's worth a try.

Things we thought we knew about central banking are no longer so clear.

[T]he past three years have shown that central banking can't be above politics -- not, at any rate, for the reasons previously given. Whether aiming for stable prices makes sense is actually a complicated question. And the line that separates supposedly technical issues of monetary policy from the unavoidably political issues of taxes and public spending turns out be fuzzy.

Why is the case for low inflation in doubt? Because the most powerful remedy for recession is lower interest rates. The deeper the recession, the more aggressive the cut in interest rates needs to be. A "stable prices" mandate for the central bank means that interest rates will be low to begin with, and however deeply the central bank might wish to cut them, it cannot cut them to less than zero.

In typical recessions this problem of the "zero lower bound" doesn't arise, because a moderate cut in interest rates is all that's needed. But the recession that started in 2008 was ferocious. The Fed cut interest rates to nothing, and it wasn't nearly enough. On some estimates, it should have cut rates by five or six more percentage points -- but a nominal interest rate of minus 5 percent isn't possible.

Not unless you abolish physical money--which is what prevents negative nominal interest rates. It's a seemingly outlandish idea which needs to be taken more seriously. (See this paper on the zero lower bound by Willem Buiter.) And if not that, then what? I discuss the options in Great Recession Demands New Rules for Central Banks.

Morris Goldstein of the Peterson Institute for International Economics explains five main defects in the EU's efforts to resolve its banking crisis: Stop Coddling Europe's Banks.

• Incentives for deleveraging;
• Absence of firm guidelines on dividends and executive compensation;
• Omissions of a recession scenario and of an unweighted leverage ratio from the stress tests;
• Inequitable burden-sharing during debt restructuring; and
• Insufficient measures to permit an escape from the adverse feedback loop between sovereign debt and bank debt.

He endorses an approach suggested by Markus Brunnermeier et al. Create a European Debt Agency to repackage euro-zone sovereign debt into senior and junior classes. See their Vox column: ESBies: A realistic reform of Europe's financial architecture. (The full paper is here; this Q&A is good too.)

Our proposal...has all the advantages of euro bonds (financial stabilisation of the Eurozone), without its drawbacks (political constraints). ESBies are politically feasible because they involve no joint liability of member states. They imply no change in European treaties. Yet they will generate a very large pool of homogenous, safe assets that can serve as investment vehicles for global investors and reliable collateral for European banks.

I'd call them ESBs rather than ESBies. Whatever you call them, Goldstein's right that the idea deserves closer attention.

Some thoughts on the charge that Obama wants to turn the US into an entitlement society.

Mitt Romney likes to contrast the U.S. economic system with Europe's welfare state. You can have a merit society, he says, or an entitlement society, but not both -- and an entitlement society is where the U.S. is heading if Barack Obama and the Democrats get their way.

It's a favorite Republican theme, and you can see why. For one thing, there's some truth to it. Contrasting the American model of capitalism with the European alternative isn't absurd. The gap is narrower than it used to be, but they're still different.

Also, Obama and the Democrats do want to move the U.S. in a European direction. Best of all, from the Republican point of view, they are generally embarrassed to admit it. American voters still see their country as a model for the rest of the world, not the other way round. Nobody will ever be elected president of the U.S. on a pledge to make the country more like France.

Democrats therefore find themselves having to deny the obvious. Obama wants to make the country more like Europe? Ridiculous. A straw man.

But it isn't ridiculous. What's ridiculous is the idea that Republicans take for granted and squirming Democrats tacitly endorse -- that making the U.S. more like Europe would be a disaster.

Read on: If Europe Can Learn From U.S., Why Not Vice Versa?

Lawrence Lindsey makes the case for Anybody But Romney by pointing out that "safe" candidates--"low-beta" candidates, he calls them--have a poor record in presidential elections. It's a cute idea. If you're behind, take a chance. Lindsey reckons Obama has the edge, other things equal, in November (the net effect of incumbency, which helps him, and the bad economy, which doesn't). So the GOP should gamble on a high-beta candidate who will shake things up.

With subpar growth, but no recession, President Obama might normally be expected to win narrowly, say by 1 percentage point.

If that model is right and the Republicans ran a "zero-beta" candidate, one with absolutely no variability around the "normal" result, he would perform quite respectably but lose. To be precise, he would lose by one point, 50.5 to 49.5. A very low-beta candidate, say one with a variability equivalent to half a point, would have an equal chance of producing a "tie" or losing 51-49. A high-beta candidate, with 10 times the variability of that very low-beta candidate, would have an equal chance of winning 54.5-45.5 or losing big, by 55-45. But if a party really wants to win--and doesn't care about how badly it might lose--it should pick a high-beta candidate.

Lindsey reviews the history and finds that safe candidates do badly against incumbents: zero-for-five in the post-war period, he reckons. High-beta candidates (Goldwater, McGovern) may get thrashed. But sometimes (Reagan, Carter, Clinton) they win. If your party's trailing, you're better off taking the risk.

This is not to say that it can't be different this time--Romney, the obvious low-beta candidate, could win. As they say in markets, "past performance is no guarantee of future results." But it is certainly not the case that, based on history, he is obviously the most "electable." Statistically, he may be the least electable.

Interesting: the capital-asset pricing model applied to politics. Bearing in mind how hard it is to write anything new in election commentary, I ought to just say I enjoyed the article and leave it at that--but here's why it's nonsense. In finance, you are interested in alpha (underlying return, after allowing for risk) as well as beta (risk). You might say the same of politics, with the difference that in politics the underlying quality of your investment is easier to judge. Lindsey doesn't even mention alpha.

In politics, beta isn't the important parameter. Mitt Romney is not just low-beta, he's also low-alpha. His problem isn't that he's safe, it's that he's weak. As for his rivals, yes, they might have higher beta than Romney--maybe--but one can say something else with more confidence: Gingrich, Santorum, Perry, and Paul have less general-election alpha than Romney. (Huntsman could be an exception, a point worth considering if he does well today.)

Lindsey's notion of political risk is not really beta in the CAPM sense anyway. If it were, he would have to believe that Goldwater's chances (or McGovern's) of overperforming relative to a generic candidate were about the same going in as his chances of underperforming. If he thought that, he might believe that Sarah Palin against Obama in November would have as much chance of shaking things up--in a good way, I mean, for the GOP--as of being a disaster. Statistically, I'd say the odds were against it.

I suppose it's true that if you're likely to lose anyway you might as well take a flier: you've nothing to lose. You don't need the CAPM to reach that conclusion. But the GOP is hardly in this position. It isn't about beta. What Republicans need is a good candidate.

Another column for your consideration:

With the world's rich economies struggling and the leaders of the European Union intent on making things worse, the gravity of the economic crisis still confronting the West is hard to exaggerate. Nonetheless, it can be done.

According to what I read, we face not just the worst recession since the 1930s, but a challenge to the West's entire economic order. The Great Recession exposes the poverty of orthodox economics. It constitutes an ideological crisis. It shows that capitalism itself is "fundamentally" flawed. If all this were true, I'd be a lot more worried about the coming year than I am -- which is saying something.

A new year's corrective is in order. Reports of the death of capitalism are greatly exaggerated.

Read on: A Crisis of Leadership, Not a Crisis of Capitalism.  

I was glad to see Jason DeParle's piece in the NYT about America's disappointing record on economic mobility. One thing I learned: some conservatives have actually mentioned the issue.

Former Senator Rick Santorum of Pennsylvania, a Republican candidate for president, warned this fall that movement "up into the middle income is actually greater, the mobility in Europe, than it is in America." National Review, a conservative thought leader, wrote that "most Western European and English-speaking nations have higher rates of mobility." Even Representative Paul D. Ryan, a Wisconsin Republican who argues that overall mobility remains high, recently wrote that "mobility from the very bottom up" is "where the United States lags behind."

Interesting that not all conservatives are content with platitudes about the land of opportunity. However, most do seem to be. To put it mildly, the right doesn't give the question the emphasis it deserves. Then again, nor does the left. As I noted previously, US liberals let their preoccupation with inequality distract them. They find high incomes more upsetting than poverty.

Obama, to his credit, talked about mobility in his Osawatomie speech--but folded these points into a main narrative about "gaping inequality", thus (I argued) burying the more important question. Cast the central challenge of American governance as the 1 percent against the 99 percent, and the more pressing problem--the bottom 20 percent--becomes a footnote.

So I disagree with DeParle about one thing: mass unemployment hasn't moved the issue of mobility toward center stage. Not yet anyway. It should have, but it hasn't. Still, every article helps.

You might be interested in a piece I wrote for the Atlantic on the subject in 2007: Rags to Rags, Riches to Riches. Here's an extract.

The American model has been regarded as proposing a kind of bargain. This is not Europe: Here, idleness and incompetence are sternly punished--but merit gets rewarded. Much more than elsewhere, your class background will neither prop you up nor hold you back. If you deserve to succeed, you will.

It is an inspiring, energizing offer--and still a profoundly influential one. It colors the national debate about taxes, health care, and other aspects of economic policy. But it is false advertising.

Most researchers now give America much lower marks than they used to for intergenerational economic mobility--the ease with which successive generations move up or down relative to their parents. As flaws in early postwar studies have been addressed, estimates of mobility have fallen. Before the 1990s, researchers tended to put the correlation between parents' incomes and their children's at around 20 percent, implying a high degree of mobility between generations. (Zero would imply no connection at all; a correlation of 100 percent would imply that parents' incomes entirely determined the incomes of their children.) In the 1990s, using better data and techniques, experts tended to put that figure at about 40 percent. Recent estimates run as high as 60 percent. The finding is not that mobility has fallen since World War II--the studies point to no clear trend. It is that as methods of measuring mobility have improved, the result, across a span of recent decades, has gotten worse. The earlier view that postwar America was an economically mobile society is less and less borne out. Perhaps it was once (before data became available to track such things accurately); but it isn't now.

More telling, maybe, is the international comparison. America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all of the Scandinavian countries, and possibly even Germany and Britain (the data are imperfect, and different studies give slightly different results).

Strikingly, the research suggests that mobility within America's middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom. According to one much-cited study, for instance, more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent. In America, more than in other advanced economies, poor children stay poor. Other data show that in America, more than in, say, Britain, rich children stay rich as well.

Ron Fournier of National Journal says something that hadn't occurred to me about Iowa and what comes next.

If Romney wins New Hampshire, he would be the first non-incumbent Republican to sweep Iowa and the Granite State since the modern caucuses were formed. There is a reason why that's never been done: Republican coalitions in Iowa and New Hampshire are mirror images of one another and, taken together, reflect the broad GOP electorate. In other words, a candidate who can win older, more conservative GOP voters in Iowa as well as white-collar, independent-minded Republicans in New Hampshire should be able to win everywhere.

Stop Romney in South Carolina? Well, he has essentially already won over a GOP coalition that resembles South Carolina's diverse electorate: Iowa plus New Hampshire equals South Carolina.

Of course, if conservatives had put a single candidate up against Romney, he wouldn't have won Iowa. But he did win, and in a state he fought for much less diligently than Santorum.

Sean Trende at RCP neatly sums things up. One, it was a good night for Romney. Two, the win does not make his nomination inevitable. Three, not this time maybe but one day, Rick Santorum's style of politics could capture the GOP.

Twice in a row now, the party has toyed with nominating a candidate who combined social conservatism with economic populism; Santorum's speech last night was essentially a northern version of a speech Mike Huckabee could have delivered in 2008.

We've already seen white working-class voters move toward the Republican Party over the past several decades -- a shift perhaps epitomized by the GOP's special election victory in New York's 9th Congressional District. If a more credible Santorum/Huckabee candidate could emerge, the party would reciprocate by moving toward these voters. This would have major implications for our political dynamic, and could deal the Democrats a serious blow in states like Pennsylvania and Ohio.

On the other hand, the Democrats have been moving toward a top-bottom coalition of "New Economy" professionals and minority voters. A Santorum/Huckabee-esque Republican Party would probably hasten the exit of upscale suburbanites from the Republican coalition, and potentially reinvigorate the New Democrat approach to governing that dominated the party's politics in the '90s.

Interesting. By the way, Trende has a new book out: The Lost Majority. Judging from this extract, it looks good. I'll be reading it.

You might be interested in this column I wrote for Bloomberg View about inequality. I argue that the US preoccupation with this subject misses two main things. First, by international standards, the US tax system is not unusually gentle on the rich, it is unusually gentle on the non-rich. Second, the US is indeed an outlier when it comes to policies affecting inequality--not because of the way its tax system works, but because it spends so little on support for the poor.

If anything, rich Americans contribute a greater share of taxes than do their peers in other industrialized nations. The top 1 percent of U.S. taxpayers paid 40 percent of federal income taxes in 2007. The top 1 percent of British taxpayers paid 24 percent of the corresponding total.

A new report by the Organization for Economic Cooperation and Development shows that in the middle of the last decade -- i.e., after the Bush tax cuts were introduced -- the U.S. income tax was about as strongly redistributive as income taxes in Canada, Denmark, Finland, the Netherlands and Sweden...

The awkward truth is that the U.S. income tax system is anomalous not because it taxes the rich lightly but because it taxes everybody else lightly...

The OECD's international comparisons tell you some other interesting things. For instance, at the bottom of the income distribution, unlike at the top, U.S. policy is an outlier. In most industrial countries, social benefits such as unemployment insurance and other cash supports are easier to get and more generous than in the U.S. -- and typically two or three times more powerful in reducing inequality...

Why does [this] command so much less attention? One reason is that American liberals find high incomes more upsetting than poverty.

The president will have a more relaxed Christmas, I imagine, than the one he was expecting a month ago. His poll ratings have improved a lot in the past few weeks. It's too soon for him to be confident of re-election, obviously, but things are looking up.

Why? One possibility is that his new and more partisan posture--the Kansas speech, class warfare and all that--is paying off. I doubt it though. If I were advising him, I'd still caution against the newly pronounced "them and us" line, for reasons I've gone into before. But I could be wrong and we'll see.

The economy is showing tentative signs of recovery. That helps, and if the trend continues it will be the best possible news for Obama. The troop withdrawal from Iraq was another plus. But my guess would be that the main thing helping Obama right now is the performance of the Republicans. What more could they have done, really, to boost support for the president?

The debates, and even more the GOP's response to them, makes one wonder about Democratic black ops. They might have been carefully orchestrated to repulse independent voters. The party is not just persistently unimpressed with Romney, who nonetheless remains the putative front-runner: that would be bad enough. Even worse are the serial infatuations, implosions and repudiations. (Herman Cain? Newt Gingrich?) These attest to a kind of collective mental unfitness.

Then, to cap it all, the payroll tax fiasco. Republicans for higher taxes! On one side, the House GOP at its most unruly and shambolic; on the other, Senate and White House united in bipartisan moderation. Maybe somebody out there is impressed and wants to see these people in charge, but the swing voters who will settle this election certainly don't.

Merry Christmas, Mr President. With enemies like this, who needs friends?

Among writers I read and admire, my Atlantic colleague Jeff Goldberg achieved a rare distinction lately: in the past fortnight he has written two of the worst columns I have read all year and one of the best.

More »

The quarrel over Politifact's "Lie of the Year" is missing the point. The fact-checker gave its annual accolade to the Democrats' claim that Paul Ryan's budget plan would "end Medicare". Liberals are rightly annoyed. Paul Krugman says Politifact is dead to him: guilty of False Balance, a capital crime. He reckons their calculation was obvious. Politifact's previous Lies of the Year were Republican lies: facts be damned, it was time for a Democratic winner.

As you know I rarely agree with Krugman about balance--in my world, balanced is better than unbalanced--but I bet Krugman is right about Politifact's thinking. The claim that the Ryan plan would "end Medicare" is at least defensible, and nobody denies that the plan would end Medicare as we know it (that's the idea). But the main thing here is that, whether they realize it or not, Politifact and the other fact-checking outfits rarely confine themselves to checking facts. They're judging claims purportedly based on facts, or interpretations of facts. Not the same.

The giveaway is their grading system. You check a fact by asking whether it is true or false. If true or false is not good enough to assess the thing you are checking, then the thing you are checking is not a fact. Politifact has a six-point grading system: true, mostly true, half true, mostly false, false, and pants on fire. These are grades you might apply to bundles of facts or claims based (with more or less validity) on bundles of facts, but not to facts.

Pants on fire, by the way, is said to mean not just false but ridiculous. I honestly can't see how the Democrats' claim about Ryan's Medicare plan meets that standard. And yet another step (intent to deceive) would be required to get from ridiculous falsehood to "lie", let alone "lie of the year".

But I digress. Once you can't say true or false, opinion enters in. What is the difference between "mostly true" and "mostly false", for instance? The various facts underlying a complicated claim can't just be added up. Some facts count more than others, and which count most is a matter of judgement--one on which reasonable people might actually disagree. Such is politics.

Here's a fact: though politicians pretend otherwise, politics isn't mainly about facts. Politicians mostly disagree not about known facts but about what the facts might be if we knew them, or about which facts matter most, or about what one should believe, given certain facts. Fact-checking gets you only so far.

Nonetheless, Politifact and the others do good work. When they take a doubtful claim apart and test its presumed factual basis, they shed light. This was true of their original analysis of "ending Medicare". Still, grading complex and deliberately tendentious claims with a single reading on a "truth-o-meter" or whatever is not just juvenile but also at odds with their claim to be humble fact-checkers. An annual Lie of the Year award explodes that pretension completely.

In the end, they're pundits like the rest of us. Better than most, I'd say, so long as you ignore the grades and read the analysis. More thorough. More balanced. They deserve to live. They're pundits with high standards--but still just pundits.

In a new column for Bloomberg View I argue that the banks' resistance to much stricter capital requirements is both wrong and dishonest: Real Reasons Bankers Don't Like Basel's Rules.

[Bankers] are being disingenuous. They do have reasons, valid after a fashion, for opposing higher capital requirements, just not reasons they can admit. The one they emphasize -- cost of funding and its effect on future lending -- is fit for public use, but bogus.

What might their real reasons be? If banks sell more shares, it's true that the return on equity will fall. If managers' pay is tied to return on equity (as it often is), they will be worse off. Shareholders, on the other hand, shouldn't mind, because the risk of their investment is reduced in proportion. Taxpayers, of course, would be better off -- less likely to be stuck at some point with the cost of bailing out the bank.

In other ways, the undeclared interests of bank managers and shareholders are aligned. The U.S. tax code, for instance, strongly discriminates in favor of debt and against equity. (Interest payments are a deductible business expense, whereas dividends and capital gains are taxed.) If you force banks to raise more equity, you reduce the value of this implicit subsidy.

Curbing the benefits of both kinds of subsidy -- the tax preference granted to debt, and the likelihood of a bailout if the bank fails -- would be bad for bank shareholders and managers and good for taxpayers. So let's be clear: What banks really dislike about the proposed new rule is that it limits their access to handouts from the rest of us. You can understand their reluctance to say so.

When the Basel III rules are eventually phased in, the biggest US banks might face a capital requirement of 10 percent. The banks are squealing at this prospect. What should the requirement be? At least double that, for reasons the column explains.

Project Syndicate reprints Havel's remarks in 1998 on a question that has some relevance for US politics just now: Do intellectuals belong in politics? Yes, he says, we need them--but they have to be of the right kind.

I am convinced that the purpose of politics does not consist in fulfilling short-term wishes. A politician should also seek to win people over to his own ideas, even when unpopular. Politics must entail convincing voters that the politician recognizes or comprehends some things better than they do, and that it is for this reason that they should vote for him. People can thus delegate to a politician certain issues that - for a variety of reasons - they do not sense themselves, or do not want to worry about, but which someone has to address on their behalf.

Of course, all seducers of the masses, potential tyrants, or fanatics, have used this argument to make their case; the communists did the same when they declared themselves the most enlightened segment of the population, and, by virtue of this alleged enlightenment, arrogated to themselves the right to rule arbitrarily.

The true art of politics is the art of winning people's support for a good cause, even when the pursuit of that cause may interfere with their particular momentary interests. This should happen without impeding any of the many ways in which we can check that the objective is a good cause, thereby ensuring that trusting citizens are not led to serve a lie and suffer disaster as a consequence, in an illusory search for future prosperity.

A demanding standard--one that he lived up to, but few others ever have.

See also Anne Applebaum's fine tribute to one of the great men of the 20th century.

Interesting data in the latest Allstate-National Journal poll, both on the country's political mood and on the focus of this latest installment in the series: retirement. The financial anxieties of "near-retirees" come through loud and clear.

This survey shows that among Americans age 50+ who have not yet retired ("near-retirees"), the recession has cast a shadow on their retirement plans and they find themselves with a completely different perspective than current retirees.

        •        On average, "near-retirees" expect to retire six years later than the age reported by those already retired.

        •        68% of "near-retirees" expect to work in some form after retirement, and about half of them say it will be out of necessity. Only 11% of current retirees report some form of continued employment.

        •        "Near-retirees" expect to retire later, have a less secure and a less comfortable retirement than their parents had. Current retirees say they retired earlier than their parents, with a more comfortable and more secure retirement.

        •        "Near-retirees" are also significantly less confident than current retirees in their ability to provide a secure retirement and handle expenses related to long-term care.

They're alarmed, but when you look at the numbers for projected savings at retirement and consider the prospects for Social Security and Medicare, you have to wonder whether they are alarmed enough.

National Journal and The Atlantic have produced a "Next Economy" supplement with some good articles on the subject. I especially recommend the closing column by Jonathan Rauch: "Escaping ICU hell."

Here is a link to the polling data if you want to take a closer look.

In a column for Bloomberg View--EU Pact Could Make Germany's Nightmare Come True--I try to make sense of Germany's approach to Europe's financial crisis. I can't claim I succeed.

With the golden rule [which at Germany's insistence caps structural budget deficits at 0.5% of GDP] in place, the EU's next economic crisis will be an interesting moment. The best and (let's hope) likeliest course for the EU would be to suspend the rule or abandon it outright. That, presumably, is something Germany would resist. Why propose this rule in the first place if you are going to have to abandon it as soon as it starts to pinch? The alternative would be to let the pact stifle recovery and drive up unemployment -- much as the EU's dithering has done in the present emergency, only more so.

Let's suppose that Europe muddles through this time. Next time, with zero fiscal flexibility, persistent underperformance in many parts of the EU, and an ever-widening gap between incomes in Europe's core and its periphery, a stark choice will present itself. Let the euro area and the single European market dissolve, which would be a disaster for Germany as for everyone else. Or form a transfer union that puts German taxpayers permanently on the hook for the EU's backward regions, which is the very outcome that Merkel dreads most.

How do you say "pretzel logic" in German?

I think it's Salzbrezel-Logik.