A well-drawn distinction from Benjamin Friedman:

Another fundamental issue that the current discussion has overlooked almost entirely is the distinction between the losses to banks and other lenders that reflect genuine losses of wealth to the economy, and other losses that don’t. When the value of your house falls, that’s a loss of wealth to the economy as a whole. If you keep paying your mortgage, you bear the loss yourself: your net worth is diminished by the amount of the decline in the home’s price. If you default on your loan, then someone else—maybe the bank that lent you the money, maybe some investor to whom the bank sold the loan—also bears part of the loss. If the government steps in and reimburses the bank, or the investor, the taxpayers will bear part of the loss as well. But however this loss is divided, what is inescapable is that someone, somewhere, will bear it. What much of today’s debate is about is how these losses should be divided among homeowners, banks, loan-purchasing investors, and the taxpayers. But the loss must be borne by someone, and America’s economy is poorer because it has occurred.

By contrast, suppose you and your neighbor have bet on whether today’s peak temperature would exceed fifty degrees. One of you was right, the other wrong. One of you won, the other lost, and the amount the winner won is identical to what the loser lost. There is no loss of wealth to the economy, merely a transfer of wealth from the loser to the winner. Many of the huge losses that American financial institutions have sustained in the current crisis are of this second kind. None of them was betting on the weather, but they were taking positions that amounted to placing bets on outcomes that represented no change in wealth to the economy as a whole. And with regard to these positions, for every loser featured in the latest newspaper story about banks posting losses and turning to the government for bailouts there is also, somewhere, a winner.

I’ve had this thought, then had the thought that this doesn’t get discussed enough, and then had the thought that I must be overlooking something and the distinction isn’t real. But Friedman’s an economics professor and everything, so there seems to be a real issue here.

Might be time to revisit this morning’s prediction that Houston is toast.

Good Outlook piece by Alec MacGillis about Barack Obama’s over-invocation of “pragmatism” as a rationale for just about everything. A disposition for or against pragmatism is a way of approaching goals, but not really a substitute for explaining what those goals are.

I think Catherine Rampbell’s article on whether the slump-induced shift to higher savings rates in the United States is here to stay could have benefited from some more clarity. Here’s a chart:

For a while in 2005 the savings rate was negative. And for a couple of years after that, it was extremely low. Then came the recession and the current leap up to about four percent. I think we can tell that the shift away from a savings rate of two percent or lower probably is quasi-permanent. That’s because it was never sustainable. And you can also tell that its roots in the structure of the American culture and economy can’t be all that deep since it’s a period that only started in 1998. But before reaching that point, the general trend in the 80s and 90s had been toward lower savings. So when we ask whether Americans will shift to a high-savings equilibrium are we talking about saving around 8 percent like in the sixties? Around 10 percent like in the seventies? The plateau around 7 percent we had in the late eighties?

In other words, there are a lot of different possibilities here. If we returned to saving around 4 percent that would be a big shift but would also be consistent with a low savings rate in historical and global terms.

Ethan Bronner and Isabel Kershner have an interesting report in The New York Times:

Israel is quietly carrying out a $100 million, multiyear development plan in some of the most significant religious and national heritage sites just outside the walled Old City here as part of an effort to strengthen the status of Jerusalem as its capital.

The plan, parts of which have been outsourced to a private group that is simultaneously buying up Palestinian property for Jewish settlement in East Jerusalem, has drawn almost no public or international scrutiny. However, certain elements related to it — the threatened destruction of unauthorized Palestinian housing in the redevelopment areas, for example — have brought widespread condemnation.

In Israel’s presentation of itself to the United States, it typically portrays itself as desperately seeking a peaceful accommodation with the Palestinians, and full of regret that internal political developments on the Palestinian side make it impossible to strike a deal. These sorts of actions, however, are the actions of a government that actually welcomes such adverse political developments on the Palestinian side because they alleviate pressure on Israel to reach a peaceful accommodation with the Palestinians. Absent such pressure, these continued efforts at land grabs can continue apace.

Meanwhile, to be clear the issue is not the right of a Jewish state to have a capital located in Jerusalem. The issue is that state’s efforts to monopolize Jerusalem rather than allow a portion of it to become an independent Palestinian city. Needless to say, all this is incredibly short-sighted. A Jewish state that controls a larger portion of Jerusalem at the price of condemning itself to long-run collapse is not worth very much. Israel’s self-presentation as a peace-seeking state is something it would do well to turn into reality.