Monthly Archives: March 2011

Recent paintings – am I an abstract expressionist?or not?

Channeling My Darlings

I painted this while listening to music (does it show?) and thinking of my granddaughters, who adore all things pink and princess-y. It may be a little over-the-top, but for them, anything goes.

The inspiration was a trip to New York and the MOMA exhibition of the Abstract Expressionists and Pop Artists of the 60’s. I’m still exploring my way around painting and figuring out what my style is, since my medium is actually silver and am currently away from my studio.

You can check out my other life at my web-site,


And we think we live in a democracy!

As a transplanted Canadian, I often wonder whatever happened to the much-touted First Amendment here in the USA. Freedom of speech is held up as the Holy Grail, yet it seems to be trampled immediately when someone opposes the status quo or the rights of the well-to-do.

What follows is a link to a story about William Cronon, Professor of History at Wisconsin and also the incoming President of the American Historical Association. In conjunction with a blog he posted, and a few days later, an op-ed in the NYT, the Wisconsin Republican Party has filed a public records request for his emails. There are several links embedded here that are well worth reading, including his op-ed, and then a link to a long blog that is a wonderful set of reflections on freedom of information.

How to have a rational discussion

With thanks to Barry Ritholtz and The Big Picture Blog – the best financial blog out there- who posted this last week, this is a great visual.

To Gadget or Not? What we really need now –

A great service to those of us who have become addicted to technology and want to slim down our collections. What do we really need and what can we now do without? The best part of technology today is that you can do more with less. Since about 1996, I began to gather a cell phone, a PDA for addresses and calendar, a digital camera, a Kindle and a laptop, not to mention a never-at-hand-when-I-needed-it video camera. Now my iPhone does it all and I only have one item to lose or break! Given that I can do either easily, this is perfect for my scattered and aging brain!

Here is my bottom line:

DESKTOP COMPUTER Lose it. Except for those of us who need it for major data accumulation and program manipulation.

HIGH-SPEED INTERNET AT HOME Keep it. Stick with your I.S.P.

CABLE TV Depends. You could get by with a good Internet connection and some low-cost subscriptions to services like Netflix, Hulu Plus and Amazon Instant Video.

POINT-AND-SHOOT CAMERA Lose it. Use your smartphone.

CAMCORDER Lose it. See camera, above.

USB THUMB DRIVE Lose it. ‘Dropbox’ app or the drafts folder of Gmail, Yahoo Mail, etc works just fine. Email yourself the files.

DIGITAL MUSIC PLAYER Lose it (probably). Do you have a smartphone? Then you have a music player.

ALARM CLOCK Keep it. Phone apps have glitches.

GPS UNIT Lose it. Smartphones have several options for GPS apps.

BOOKS Keep them. You can even borrow them free at sites called libraries. Except for recipe apps for the iPad – complete with video instructions and timers! Wow! Can’t get that in a cookbook!

The whole article is:

Gadgets You Should Get Rid Of (or Not)
Published: March 23, 2011

………..and I seem to be unable to insert the link here! Just color me blog-challenged today!

Big Brother is Watching you! – from the New York Times

It’s Tracking Your Every Move and You May Not Even Know

Published: March 26, 2011


A favorite pastime of Internet users is to share their location: services like Google Latitude can inform friends when you are nearby; another, Foursquare, has turned reporting these updates into a game.

Michael Löwa for The New York Times

Malte Spitz was surprised by how much detail Deutsche Telekom had about his whereabouts.

But as a German Green party politician, Malte Spitz, recently learned, we are already continually being tracked whether we volunteer to be or not. Cellphone companies do not typically divulge how much information they collect, so Mr. Spitz went to court to find out exactly what his cellphone company, Deutsche Telekom, knew about his whereabouts.

The results were astounding. In a six-month period — from Aug 31, 2009, to Feb. 28, 2010, Deutsche Telekom had recorded and saved his longitude and latitude coordinates more than 35,000 times. It traced him from a train on the way to Erlangen at the start through to that last night, when he was home in Berlin.

Mr. Spitz has provided a rare glimpse — an unprecedented one, privacy experts say — of what is being collected as we walk around with our phones. Unlike many online services and Web sites that must send “cookies” to a user’s computer to try to link its traffic to a specific person, cellphone companies simply have to sit back and hit “record.”

“We are all walking around with little tags, and our tag has a phone number associated with it, who we called and what we do with the phone,” said Sarah E. Williams, an expert on graphic information at Columbia University’s architecture school. “We don’t even know we are giving up that data.”

Tracking a customer’s whereabouts is part and parcel of what phone companies do for a living. Every seven seconds or so, the phone company of someone with a working cellphone is determining the nearest tower, so as to most efficiently route calls. And for billing reasons, they track where the call is coming from and how long it has lasted.

“At any given instant, a cell company has to know where you are; it is constantly registering with the tower with the strongest signal,” said Matthew Blaze, a professor of computer and information science at the University of Pennsylvania who has testified before Congress on the issue.

More opinion on the wrongheadedness of austerity politics

My Dad’s take on this subject was “Don’t spend less; make more.”  In other words, if you bring in more tax revenue, the costs will be covered and you don’t need to slash needed government services.  And the way to bring in more tax revenue is to stimulate the economy, not bring in austerity measures.  Read on-

The Austerity Delusion

Published: March 24, 2011


  • Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

    What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

    It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.

    It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.

    Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

    So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.

    How’s that story working out so far?

    Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.

    But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

    Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

    That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

    And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.

    But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

    Which brings me back to what passes for budget debate in Washington these days.

    A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.

    In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.

A delightful chicken story from the New York Times



Chicken Vanishes, Heartbreak Ensues


Published: February 2, 2011

THE chickens of New York City, for the most part, live fairly sheltered lives, securely tucked into private backyards and padlocked community gardens. Our chickens, by contrast, are public figures — their yard faces 20 feet of busy Bedford-Stuyvesant sidewalk. The chickens themselves chose this bustling thoroughfare, decamping there even when they could have settled in our spacious, semiprivate back garden. They wanted to see and be seen — like so many New York transplants, they seemed to feed on the energy of the street.

The admirers came in droves. The neighborhood immortalized by Biggie Smalls and Billy Joel has undergone widespread gentrification, and between the trend-conscious newcomers from suburbia and the nostalgic migrants from the Caribbean and rural South, there’s an awful lot of chicken love in Bed-Stuy these days.

And what’s not to love? There’s something intrinsically happy about a chicken. The name: a little hiccup in the mouth. The shape: a jaunty upswing of feathers, a grin. The ceaseless bobbing, scratching, pecking. It’s nearly impossible to feel melancholy in the company of chickens. They are a balm for the weary urban soul.

The spirit of the chicken regularly infects the sidewalk parade down Franklin Avenue. People break out in chicken dances. They cluck. They coo. They cock-a-doodle-doo. (One toddler ventured a tentative “oink, oink” before her mother gently corrected her.) Chickens make people loose, and they make them gregarious. In fair weather, scarcely an hour passes without a motley assortment of gawkers at our gate — dog-walkers, corner guys, stroller pushers — eager to inform, or misinform, one another on the finer points of chickendom. We’ve considered posting an F.A.Q. sheet — yes, they’re hens; no, they don’t need a rooster to make eggs — but that would spoil the fun. People like working it out among themselves.

In a neighborhood fraught with the tensions of gentrification, making people talk to one another, and talk about something other than themselves, is not an insignificant accomplishment. What I’m saying is that these chickens are important in a way that chickens aren’t usually important. They are Bed-Stuy’s very own peace doves.

Imagine our dismay last June, then, when Gertrude, a Rhode Island Red and our prize layer, was stolen.

The chicken yard was a classic crime scene: Coop open. Hatch lying on the ground. T-Rex, Gertrude’s long-suffering subordinate, standing dumbfounded.

After much deliberation, we called the police, so we’d at least be alerted if her corpse turned up within their purview. They came, laughed, snapped pictures of T-Rex with their cellphones, and texted them to friends.

We decided to appeal to Gertrude’s public. We posted a big sign on the gate, letting people know what had happened, and pleading for her return, no questions asked.

As with any theft, the worst part is the blow it deals to one’s faith in humanity. The chickens were in danger of being demoted from goodwill ambassadors to harbingers of doom, canaries in the neighborhood coal mine.

The sidewalk confabs reached a fever pitch. People were devastated.

A man with a neck tattoo shook his head and tut-tutted, “What kind of person would do something like this?” A woman in a church hat encouraged us to turn to God. Neighbors posted another sign: “439 Franklin misses Gertrude!” People scribbled commiseration. (“My son is sad! Find Gertrude!”) The crime was taken as proof of the decline and fall of civilization, and we found ourselves assuming the role of the comforter far more than the comforted.

Again, this is Bed-Stuy. Not Mayberry. Yet the response was more suited to a town with less in the way of a police blotter. Such dramatic emotional outpourings for a lost chicken seemed frankly disproportionate, since you can hardly walk a block in this town without being offered some tantalizing version of dead chicken. And since your average American consumes more than 80 pounds of poultry a year, the odds were good that most of the mourners had eaten a chicken in the last few days, if not hours.

But I digress. Back to the crime scene.

Everyone had a theory. Gertrude’s theft became a blank slate onto which people projected their assumptions about the neighborhood, the city and humankind. Not all the theories reflected well on their proponents — there was a raft of confused ideas about the cultural practices of Caribbeans, and the dietary predilections of crack addicts.

Sidewalk symposiums are one of the great pleasures of urban living, and New Yorkers are masters of the art, ready to hold forth on the most abstract or esoteric musings without so much as a how-de-do. Where I come from, you’d be obliged to at least mention the weather, if not disclose your actual name and provenance, before delving into something so intimate.

Was it hunger? Religion? Envy?

No information was forthcoming. Either no one knew or no one was talking. But one of the corner guys promised to “put the word out” and, if he found out who did it, to “put the hurt on him.” Which was comforting. Kind of.

About a week after Gertrude’s disappearance, after we’d all but given up hope, a young man stood at the gate and shouted that he had “information about the chicken.” We went downstairs, opened the front door, and whom should we find but our beloved Gertrude, very much alive and full of her signature élan, tucked under the young man’s arm.

He was in his late 20s, remarkably handsome and stylishly dressed. He sheepishly related a story of a drunken dare that led a friend of his to steal the chicken, for the promise of $100.

Maybe there was a friend. Or maybe there wasn’t. Either way, the young man said he felt compelled to return Gertrude when he saw how much the neighborhood missed her. He apologized at least 15 times. And we forgave him — we were so surprised and delighted by Gertrude’s improbable return that we hugged him warmly and thanked him profusely. Then he went on his way, apologizing again and again over his shoulder, and we never saw him again.

We put up a new sign to explain Gertrude’s sudden reappearance, and, in our jubilation, we allowed ourselves some license with the truth: “We’re not sure where she’s been, but now she speaks Russian, has a few tattoos, and insists that we call her Kiki.”

Her return rocked the neighborhood. Crowds gathered outside the gate to marvel at her resurrection. More than two dozen people wrote their congratulations on the new sign — surely one of the only comment boards in the city that didn’t garner a single negative remark, or even a vulgar one. They wrote in Spanish, in Twi (a Ghanaian language) and, of course, in Russian, in honor of Kiki. They signed “D’s Daycare,” “the Italian guys from Monroe,” “Puerto Rican from Monroe,” “Ladies of 439 Franklin,” “House of Channy” and “Snake.” Among a profusion of exclamation points, smiley faces and hearts, the good citizens of Bedford-Stuyvesant saluted the Lazarus chicken: Holla! 2 good 2 be 4 gotten. Awesome! Peace. Akwaba. Welcome Home.

An oldie but a goodie -Feb. 16, 2011- Michael Lewis for Bloomberg on Why Things Fell Apart

All You Need to Know About Why Things Fell Apart: Michael Lewis

Feb. 16 (Bloomberg) — A surprising number of my fellow citizens appear to be unaware of my service these past 18 months as a member of the Financial Crisis Inquiry Commission.

Thus it may come as news that I have declined to sign the report issued by the majority, or the dissent by the three- member minority, or even the dissent from their dissent, written by the now-immortal Peter J. Wallison. I hereby dissent from the dissent from the dissent. My dissent is different from all those other dissents, which is why I am dissenting.

I do this, of course, not to call attention to myself. Still less do I seek to enhance the status of my application for employment with JPMorgan Chase. I seek merely to inform the general public of the true causes of our so-called financial crisis.

The task is not a simple one. In limiting me to a mere two pages at the end of their 633-page book, the majority and the other dissenters have suppressed not only several apt metaphors, but deep truths.

Here, in a far-too-brief executive summary, they are:

Financial Crisis Cause No. 1: Wall Street’s shifting demographics.

In the commission’s report Federal Reserve Chairman Ben Bernanke describes recent events as “the worst financial crisis in global history, including the Great Depression.” The event, in other words, was unprecedented. To understand an event that has never before occurred, we must logically begin with those factors that have never before been present. On Wall Street, the most obvious such factor is women.

Distorted Judgment

Of course, the women who flooded into Wall Street firms before the crisis weren’t typically permitted to take big financial risks. As a rule they remained in the background, as “helpmates.” But their presence clearly distorted the judgment of male bond traders — though the mechanics of their influence remains unexplored by the commission (on which several women sat).

They may have compelled the male risk takers to “show off for the ladies,” for instance, or perhaps they merely asked annoying questions and undermined the risk takers’ confidence.

At any rate, one sure sign of the importance of women in the financial crisis is the market’s subsequent response: to purge women from senior Wall Street roles. Wall Street’s gender problem is, for the moment, of merely academic interest. Less academic is…

Moral Collapse

Financial Crisis Cause No. 2: The moral collapse of the American working class.

AIG head Robert Benmosche has recently pointed out that the reason his firm has enjoyed such great success is precisely because it has avoided selling insurance to the large number of Americans who believe, as Benmosche put it, “that the government is responsible for what happens to me.” (As we know, the government is responsible only for what happens to AIG).

The CEO of JPMorgan, Jamie Dimon, has often called our attention to the outrageous amount of banker bashing by Americans outside the financial sector, who seek to blame their troubles on others.

Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust.

Amazingly, these ordinary Americans don’t even appear to feel guilty for their actions. Like wild animals that have lost their fear of humans, they continue to wander down from the hills to rummage through our garbage cans for sustenance.

Best Subprime

Frankly, the commission’s report does nothing to improve public morals. In discussing the role of the 1977 Community Reinvestment Act, for instance, the report notes that the loans made by big banks to meet the act’s requirements — that is, loans to poor people in crap neighborhoods — outperformed, dramatically, the general run of subprime loans.

Such nitpicking merely obscures the critical point. For at least two centuries the U.S. government has encouraged people who didn’t work on Wall Street to think of themselves as “equal.” Government policies have emboldened ordinary Americans to borrow money they never intended to repay, just like rich people do, and cowed the financial elite into lending it to them. You can’t forget to bear-proof the garbage cans, and expect the bears won’t notice.

Along these same lines I cannot help but point out…

Blame China

Financial Crisis Cause No. 3: The Chinese.

The willingness of this remote and curious people to sell us goods at ridiculously low prices is disruptive. It encourages our poor to believe they can afford many items which they should not be able to, for instance. And the vast number of dollars these same Chinese people willingly lend to us at absurdly low rates of interest places an unfair burden on our financiers, who must find someplace to put them.

This is a far more difficult job than is commonly understood; it often leaves Wall Street people feeling overworked and underappreciated. If we want our financiers to perform even better than they do, we must cease to expect more from them than they can give.

Which brings me to…

Financial Crisis Cause No. 4: Upon our trusting, hard- working and underappreciated financiers we thrust the impossible task of overcoming impersonal historical forces.

The most distressing aspect of the commission’s report is its attempt to blame actual human beings for the financial crisis: fraudulent CDO managers, greedy ratings companies, Wall Street bond traders and, especially, Wall Street CEOs. Think about this: If everyone on Wall Street is guilty, how can anyone be? If no one on Wall Street saw it coming, how can anyone be expected to have seen it?

Details for Dummies

Anyway, as several Wall Street CEOs tried patiently to explain to the commission, the details were never their responsibility. Martin Sullivan, the CEO of AIG in the three years leading up to its near collapse, even went so far as to prove that he had no idea how much he’d been paid ($107 million).

The commission proved incapable of grasping the point: the rare man capable of running a big Wall Street firm remains focused on the big picture. And in the big picture, from the point of view of their firms and their earnings potential, the so-called financial crisis was a blip. They’ve already forgotten about it.

And they assume that, eventually, you will, too.

(Michael Lewis, most recently author of the best-selling “The Big Short,” is a columnist for Bloomberg News. The opinions expressed are his own.)

Testosterone and Politics

TESTOSTERONE AND AGGRESSION – AND THE LINK TO SEXUAL SCANDALS – A brief summary of the literature by my friend, Professor Jean Elson, Ph.D.

I asked her about the research regarding testosterone and alpha-males – in regard to all the news in the last decades about politicians, for example, as men in positions of power and their scandals with women – Clinton, Spitzer, Gingrich, Giuliani, Gov. Mark Sanford, Sen. Gary Hart, Pres. Kennedy, the list goes on…  It seemed to me as a biologist that testosterone levels in these men might explain (not excuse) their behavior as it is almost a cliché in our society – the old story of the boss chasing his secretary around the desk is almost enshrined in the mid-20th century psyche.  While we used to believe that the male with the highest level of testosterone achieved the alpha-male status, that is in fact not the case, as shown by the research – the levels actually RISE AFTER WINNING!

So here is the email on the subject from Dr. Elson:

Kemper, Theodore. 1990. Testosterone and Social Structure. New Brunswick, NJ: Rutgers U. Press

Kling, Arthur. 1975. “Testosterone and Aggressive Behavior in Man and Non-human Primates,” In Hormonal Correlates of Behavior, B. Eleftheriou and R. Sprott, eds. New York: Plenum.

Theodore Kemper notes several studies in which testosterone levels were linked to (human) men’s social experiences. The studies included tennis players, medical students, wrestlers, nautical competitors (?), parachutists, and officer candidates. In all cases, winning and losing determined the men’s levels of testosterone. The levels of winners rose dramatically, while those of the losers dropped or remained the same. Kemper suggests that testosterone levels vary depending upon men’s experiences of either dominance (“elevated social rank that is achieved by overcoming others in a competitive confrontation”) or eminence (“elevated social rank that is earned through socially valued and approved accomplishment”– I use Donald Trump as an example). Men’s prior levels of testosterone before either dominance or eminence could not predict the outcome– it was the experience of rising status due to success that led to the elevation of the testosterone level.

Here’s a cite (annotated) claiming that testosterone creates a “permissive effect,” rather than directly causing aggression:

Sapolsky, Robert. 1997. The Trouble with Testosterone. New York: Simon and Schuster, p.155.

Robert Sapolsky is a Stanford neurobiologist who criticizes the leaps of logic that other scientists make regarding testosterone as the direct cause of aggression. Experimenters took 5 male monkeys and arranged them in a dominance hierarchy from one to five, with the #1 monkey having the highest testosterone level, and levels decreasing down the line. Monkey #3 would pick fights with #4 and #5, but will avoid and run away from numbers #1 and #2. HOWEVER: When they gave Monkey #3 a massive dose of testosterone, he would become more aggressive– but ONLY toward Monkeys #4 and #5. Monkey #3 would still avoid Monkey #1 and #2. This has been used to prove that testosterone has a permissive effect on aggression– it doesn’t cause it, but it does facilitate and enable the aggression that is already there.

If you are interested in a really good critique of hormones from a biologist, fire up your Kindle and read the work of Anne Fausto- Sterling, who I read in grad. school, used in my dissertation and book, and used at UNH with grad. students. Myths of Gender and Gender Trouble are really good– I have the hard copies if you want to wait. Fausto-Sterling writes a bit densely, but I know that you are up to it. I met her when I was working at Harvard.

As I mentioned in my previous email, I have known about and have been teaching about this topic for many years (are you sure you didn’t hear about this from me?). This is one of the points that my students most remember. Another point is most remembered by women students in particular: During the supposed PMS period women’s hormones are most similar to men’s hormones all of the time.

This is a fascinating interview with economist Joseph Stiglitz from Barron’s, March 19, 2011

I enjoyed this interview and hope you will, too:

BARRON’S  The Dangers of Lessons Unheeded



A Nobel Prize-winning economist says the West hasn’t learned much from Japan’s long slump or the struggles of Hoovernomics.

The exceptionally lucid Columbia University professor is one of the world’s most widely quoted economists, especially since he won the Nobel Prize for Economics in 2001. It’s easy to see why: A prolific author, he helped wake Americans to the consequences of economic integration with the global economy (Globalization and its Discontents, 2002), published a gritty analysis showing the surprisingly high costs of the Iraq War (The Three Trillion Dollar War, 2008), and most recently, explored the forces behind the financial crisis (Freefall: America, Free Markets, and the Sinking of the World Economy, 2010). Often controversial, but always worth listening to, Stiglitz shared his views about the global economy while in Japan, where he attended meetings after the earthquake. Then, he flew to China.

Barron’s : How bad is it in Japan?

Stiglitz: There are high levels of anxiety. They don’t have a full account of the damage. There’s an orderliness you don’t see in many countries in times of crises. It’s very disciplined, and very orderly. But the world’s third-largest economy, which used to be the second-largest, is going to be obviously traumatized for an extended period. They’ve loosened policy to try to prevent the market from going down more than it has.

In the short term, there will be a negative jolt. In the intermediate term, when they figure out the electricity situation and come to terms with it, there will be increasing GDP as they reconstruct, address questions like whether they need to build bigger seawalls, diversify their electricity system, and renew their commitment to energy efficiency which will require more investment. But their imports of consumer goods will go down and that’s a bad thing for the global economy. They will be much poorer, in a way I describe in my book Mismeasuring Our Lives: Why GDP Doesn’t Add Up. It will look like Japan is doing well, but [there will be] destruction of wealth.

The sad thing is that they’ve never fully recovered from the bubble of 1989 bursting. In that sense it should remind the U.S. of what happens if you allow a bubble to get outsized. It’s water under the bridge, but Bernanke and Greenspan have to bear some responsibility for that ideology that bubbles don’t really exist, and they clearly do. When we went into this financial crisis, the administration said, “We won’t make the mistake of Japan and delay restructuring.” That’s exactly what we did. It’s mind-boggling that we haven’t learned any of the lessons of Japan.

Before we talk about all that, what are the most surprising developments since you won your Nobel Prize?

Surprising to whom? The bubble episode surprised so much of the world—Greenspan and Bernanke believed that markets knew how to handle risk, self-regulation was adequate and the banks had incentives to manage risk and so forth and so on. We saw that it isn’t true—in a very dramatic way. That wasn’t surprising to me because my Nobel Prize was about the economics of information and this notion of agency theory, that the people who are making decisions do not necessarily reflect the interests of those who they are supposed to be serving.

The kind of incentive schemes that were being employed by firms, banks and financial institutions weren’t consistent with any model of rational behavior other than exploitation. If you believe incentives matter, something untoward was going to happen. At the level of markets, securitization had some fundamental flaws, because you didn’t have the incentives to monitor or manage them and created a moral hazard. To our leaders and erstwhile gurus, it came as a very big surprise. You have a market economy where incentives do matter, but in which they aren’t always aligned.

Have you had to adjust your thinking in any way?

I have been quite honestly surprised at how well Asia has been doing. These are export-driven economies that have gotten a very big shock to their export markets, and they’ve managed to survive, prosper, and begin to develop their internal markets.

The second surprise is that I thought there would be a greater public understanding of the failures that occurred. Unfettered markets really don’t work, and we need to do something about too-big-to-fail banks etc. Obama is a little bit of a surprise. One would have thought this was an opportunity to redefine the market economy. In France and Germany, there has been a lot of discussion about the lessons. The Financial Crisis Inquiry Commission here clearly said this was a man-made crisis. But the political response is to come to the aid of big banks and leave their power basically unchecked. The consequence for the U.S. is very unhealthy. A lot of people, including the Tea Party movement, have come to the view that our government has been captured. I also assumed there would be checks and balances that would prevent some of the worst excesses, for example the repeal of Glass-Steagall. But the conflicts of interest have been much worse, and the problems of increased concentration of the banking system have just been phenomenal.

On the positive side, one new, vibrant area that’s taken off is the study of how interconnectivity can lead to instability. We economists hadn’t focused on financial interactions and how that can lead to financial instability. Believe it or not, most models used by central banks only looked at savings, ignoring credit institutions and securities markets. That reflected a mainstream view that institutions don’t matter. This was cognitive dissonance of a high order.

You’re famous for criticizing the IMF during the 1998 Asian financial crisis. But now Asia has the planet’s strongest economies.

The overwhelming evidence is that the austerity in East Asia was a disaster. It made their economies weaker; it basically lost them two or three years. When they pushed aside the IMF and followed policies markedly different from those advocated by the Washington consensus, they grew robustly. The positive thing that came out of the East Asia crisis was a determination never to become reliant on the IMF again. It provided an impetus for them to follow courses that were very non-Western: They didn’t do the rapid financial capital-market liberalization that the IMF had advocated. Had they done so, they would have the same kind of instability that we in the U.S. and Europe have had.

Secondly, they put aside a lot of money, increased their reserves and that meant that they had far more ability to withstand the crisis. But now, it presents a problem for global recovery. Money that isn’t spent lowers global aggregate demand. And the world faces a lack of aggregate demand today.

Is the growth in Asia sustainable?

Yes. Perhaps too much emphasis was placed in the past on trade, which was a key ingredient for priming the engine, getting them going. But per-capita income in China and India is still a fraction of that in advanced industrial countries, which means that they have scope for increasing per-capita human capital and knowledge. As they close that gap, their incomes will grow at very rapid rates. While there are limits on the normal pace of resource accumulation, there are no theoretical limits on how fast you can close the knowledge gap. Obviously, trade makes things easier. A weak Europe and America will force them to transform their economies faster, and that transformation is costly.

Because it’s Lent, it seems like a good time to talk about austerity. How weak will Europe be? Or America, which has had a very different policy response?

Europe’s unemployment will remain higher than the U.S. There will be a lot of volatility. We have already seen a double-dip in the U.K., and we’ve seen Greece go into negative territory, along with the other periphery countries, but I don’t see it for Europe as a whole. The crisis and the resource shock is impeding Spain’s ability to restructure, in spite of all the good intentions of the government. It’s been a single bad dip for them. I am surprised that so many European leaders and some Americans, having seen the disaster of Hoover economics, are still going ahead with austerity. The evidence is overwhelming that it will lead to an economic slowdown.

The problems in Ireland, Greece and Portugal haven’t gone away, and the markets in their irrational way will episodically focus on them. When it does, the euro will go down, and that will be good for Germany, which is well structured for exports, and might trickle down to some other European countries. It is an unintended, but beneficial, consequence of the market irrationality.

This is where Europe and the U.S. clearly interact. The president made it clear that he hoped for us to have an export-led recovery. Our biggest market is Europe. Even if China starts consuming more, it will consume manufactured goods, education and health care made in China. And if China boosts its currency’s value, we are going to be buying textiles from Sri Lanka and Bangladesh. Our real concern is Europe. A weak euro will make it more difficult for us to export and to recover.

What about oil?

Although as a share of U.S. gross domestic product, oil imports have gone down, it’s still a huge number and if prices go up by 20% or 30%, that increases our import bill and that money isn’t available to spend at home. One of the points I made in my book with Linda Bilmes, The Three Trillion Dollar War, was that the high oil prices caused by the war had a very depressing effect on the economy. At that point, we could counter it with low interest rates, which of course contributed to the bubble. So, ironically, you could blame the bubble in part on high oil prices. The economy ran into problems when oil prices continued to rise and set in motion inflationary pressures, and the Federal Reserve felt that its mandate to keep inflation down meant it couldn’t offset them. That’s when the bubble burst. Now we’re in this unusual situation, with no room to maneuver on rates, but with some pressure instead to raise them like in 2008. We are lucky compared to other countries because energy prices and food prices are a small fraction of our consumer price index. Other countries, though, if they still believe in the doctrines of inflation targeting, may raise interest rates. That will slow the global recovery.

Another way of thinking about this is that it’s a redistribution of income from the rest of the world to the oil-producing countries. You are taking money away from people who spend it and giving it to people who rationally don’t spend it because it’s temporary. So this is going to be bad for global aggregate demand. The higher oil goes, the more central banks will be led into raising interest rates, slowing their economies and leading to more money being transferred from those who spend to those who don’t.

The other factor is that many Americans are facing financial constraints, trying to deleverage, rebuild balance sheets. An increase in oil prices is very similar to an increase in taxes from their point of view. Their income is going down and, because labor markets are weak, wages aren’t going up very much. The impact of an increase in taxes is more significant when households face financial constraints.

One other aspect that I don’t know how to assess is the interaction between house prices and energy prices. Houses in suburbs and exurbs are dependent on the price of oil. In the short run, it might mean that house prices in exurbia and suburbia, which in many areas are already weak, may go down even more.

Meanwhile, QE2 is running out and Bill Gross just sold his Treasury bonds.

These things will make very little difference. Real rates have increased since [quantitative easing] began. There are two categories of firms. One is big multinationals that are awash with cash and won’t be affected by a slight change of interest rates. The other is the small and medium-size enterprise, where credit flow is choked. That hasn’t been fixed. If anything, QE2 has contributed to the creation of bubbles elsewhere reverberating back to higher commodity prices. [Chinese Prime Minister] Wen Jiabao last week blamed countries engaged in quantitative easing for this.

It’s very difficult to get a clear picture of the U.S. economy at this point. The one-year payroll-tax cut is putting more money in people’s pockets at the same time that the increase in oil prices is taking money out. Both are of uncertain duration. The Republican strategy of encouraging government at the state, local and federal level to weaken collective bargaining means all Americans should be worried about their future and sends a strong message: “Don’t spend.” And to the extent that people pay attention to deficit-commission reports, it’s another big damper that says, “Don’t buy a house now, because you may not even be able to get a mortgage deduction.”

Is Obama in deep trouble?

A lot depends on whether he succeeds in framing the issue. In the summer of 2012, the unemployment rate almost surely will be north of 8% or 7.5%. No one thinks it will be better than that. In an objective sense, the situation is dismal. If he can frame it to say he inherited a big mess, pulled us back from the brink and made steady improvement, people will say he’s done a reasonable job. But that narrative is getting old, and it’s hard to sell.

The narrative on the right doesn’t make a lot of sense: It’s the inherited weakness of the economy that caused the deficit, not the other way around. The solution to the deficit problem is putting America back to work and austerity measures go exactly in the opposite direction. The mainstream of the Republican Party is corporate welfarism. The Tea Party has an intellectual constituency to get government out, even though it was too little government that failed to stop the banks’ behavior and caused the crisis. The incoherent alliance between corporate welfarism and intellectual libertarianism may prove effective, but that depends on the ability of the Republican Party to come together with a plausible candidate.

Thanks, Joe.