Brad Plumer did an excellent post earlier this week calling bullshit on ECB claims that it would be illegal for them to step up to the plate and provide relief in the European debt crisis. In a speech delivered early this morning in Frankfurt, ECB Chief Mario Draghi took another stab at explaining himself. His view is that if the ECB stepped in to offer relief, that might undermine its credibility as an inflation-fighter over the long term. “Losing credibility can happen quickly,” he warned, “and history shows that regaining it has huge economic and social costs.”

I’m running out of analogies to explain how frustrating I find this logic. So let’s just be frank. What is it that Draghi thinks is happening now? Is Ireland enjoying a walk in the park? Have the past 12 months been party time for Greece and Spain and Portugal? Another year of this kind of suffering is baked into the cake for those four countries. If Italy tips into a Spain-esque depression, wouldn’t that have huge economic and social costs? Aren’t there costs to prolonging the Spanish depression? Or think about plucky little Ireland and Estonia, winning praise from bureaucrats everywhere for their imposition of internal devaluation, aren’t they going to smacked with a sledgehammer if things go to shit? And what about France?

Now I don’t want to be alarmist, but let’s talk a bit about credibility. Suppose there’s a prolonged, continent-wide depression. Suppose the European Union and its institutions lose all credibility as a force for human welfare. Suppose the mainstream political parties in every European country lose all credibility as vehicles for popular aspiration. How does that story end? Don’t we already know? Didn’t we build these institutions for a reason? I think they were built for a reason. A reason that had something to do with huge economic and social costs. But it wasn’t fear of the Harmonized Index of Consumer Prices increasing at a four percent annual rate.

The ongoing economic struggles in Europe have a somewhat unfortunate tendency to cause people to resort to somewhat lazy national stereotypes when discussing the issues. I keep hearing that hard-working Germans won’t stand to subsidize lazy Club Med lifestyles. But note that Italians put in much longer hours hours than Germans and the gap is growing:

That’s not because Germans are lazy, it’s because German workers are productive and the gap is growing. When workers get more productive, they consume more goods and services, but they also work less. And most of all, productivity and “hard work” are not the same thing. Vietnamese rice farmers have abysmal labor productivity, but they’re working very hard. In general, workers in high-productivity northern European countries (Netherlands, Denmark, etc.) work less, not more, than their southerly neighbors.

Walter Isaacson’s Steve Jobs biography is a tremendous narrative but doesn’t offer a ton in the way of efforts at analysis. This is probably for the best, since it lets the rest of us talk about it at great length. But to me, one of the most astounding things about Jobs’ life is something Isaacson barely mentions — he made most of his money making animated feature films.

If you’d heard about two different people, one of them a rich guy who investment a few million dollars in Pixar in the mid-to-late ’80s and handled the big picture dealmaking with Disney without playing a substantial role in the company’s movies and the other Steve Jobs who brought us the Apple II, the Macintosh, the iPod, the iPhone, and the iPad, you’d think it was ridiculous that the Pixar angel investor made more money than the genius consumer electronics designer. This would probably count as an example of how weird it is that the economy seems to do more to reward people who just shuffle money around than people who invent and create stuff. The fact that they’re actually the same guy makes the life story more interesting, but doesn’t actually change the main point. Inventing successful products is lucrative. Spearheading a successful corporate turnaround is lucrative. But in strict financial terms, it really doesn’t compare to well-timed investment decisions. And yet we all know that the ratio of skill-to-luck involved in industrial design is much higher than in investment timing.

Metaphors are important to how people think about the world, so I think it’s worth discussing them explicitly. Many people, I think, view the relationship between a central bank and a parliament as like a canoe. You’re both paddling the thing in tandem. And if the boat’s not getting to where you want it to go, the sensible question is to ask who’s not paddling hard enough. If you have more inflation than real output, then you need parliament to paddle more. But if prices are dipping into scary deflation territory, then maybe the central bank has to step up.

A different way of thinking about it would be a sailboat. The central bank is blowing the wind, and the parliament has its hand on the steering wheel. The wind strength determines, in nominal terms, how far the ship goes. The steering determines whether that nominal distance gets you closer to where you’re trying to go in terms of living standards. As long as some wind is blowing, it’s true that better steering will shorten your trip. And it’s certainly true that harder wind isn’t going to compensate for the ship pointing in the wrong direction. But at the same time, even a really well-steered ship isn’t going to go anywhere without wind in its sails. If you’re becalmed, you’re becalmed and getting lectures about how your previous navigation was less than ideal doesn’t change anything. It’s true that you can always hope the ocean currents push you in a favorable direction, and that it would be advisable to have the rudder in the right position to take advantage of good luck, but fundamentally you need wind. By the same token, if the ship’s going in the wrong direction what you really need is to turn the ship around, not less wind. At the same time, if the wind goes too strong, you could dangerously overburden your navigators.

The recession and the endlessly escalating cost of college have, rightly, put a bit more emphasis on the fact that higher education is heterogeneous and students should probably try to study something worthwhile. Unfortunately, I think people sometimes misunderstand what is and isn’t a worthwhile program of study. This chart from Kay Steiger is probably a good place to start:

People, I believe, intuit that the STEM fields are good majors. But I think that’s not just, or even primarily, because of their intrinsic merits. The fact that these programs are hard and the people in them tend to spend a lot of time studying is an important part of the story. By contrast, majoring in “business” sounds very practical-minded to a lot of people. After all, how could a business degree not be more valuable than some nonsense like philosophy? That’s one of the reasons why it’s become the most popular major by far. But business majors aren’t actually doing anything! Not surprisingly, in exchange for doing less work than people in other majors, business majors also learn less.

None of that’s to say that there’s anything wrong with business (or education) as a subject to study. But a good starting point for colleges across the country would be to say that if they have degree-granting programs that don’t seem to require the students to do any work, they’re probably doing something wrong. Meanwhile, I worry that in some respects we’re probably undershooting arts/humanities education as a country. For people who are good at it, the ability to create objects of aesthetic merit is incredibly valuable and this is a domain where we show no little sign of making progress with automation.

Via John Sides, an impressive piece of social science looks at partisan polarization in views of Godfather’s Pizza:

One of the biggest mistakes people make in thinking about politics is overlooking this kind of thing. People have very strong and largely fixed views about the political parties and their major leaders. When a partisan politicians starts talking about something loudly, he doesn’t really persuade anyone. If people pay attention at all, what happens is that he causes opinion to become organized along the main axis of partisan conflict the way you can use a magnet to make all the iron filings line up in a certain way. If there’s an issue you’d like to see progress on, your best hope by far is for two relatively obscure members of congress from opposite sides to reach an agreement, then persuade a bunch of their colleagues, and then unveil the proposal as a big bipartisan initiative. People love bipartisanship.

I share Erik Loomis’ skepticism that we should attribute an important social role to Twitter or other information technology in driving or facilitating the Occupy Wall Street protests. The issue here seems to me to be the same as with efforts to draw a causal link between social media and anti-authoritarian movements abroad — the reasoning is backwards.

Think about something banal. A dinner party. If I were to organize a dinner party, I would invite people by email and they would RSVP by email. My friends would all do it the same way. So an alien might look at all these dinner parties and conclude that email was the key party-enabling technology. Thanks to email, people can gather and socialize! But that’s wrong. Before email, people just used earlier technologies to do the same thing. We use email because email exists and it’s easier. But do we have more and better dinner parties in 2011 than we had in 1991? Maybe we do. After all, they’re easier to organize. On the other hand, email also makes it easier to organize meetings at work. It makes it easier to bug employees after hours. It makes it easier to organize a revolution. It makes it easier to gossip with your buddy who still lives in Boston. But it’s doubtful that you actually do more of everything. There are still only 24 hours in a day. You still need to sleep. And you need to get to the gym after eating all that food at the dinner party. To figure out what’s going on, you need to actually examine how people are using their time and not just observe that the Internet facilitates all kinds of different things. As I recall, 20 years ago we had a lot of anti-authoritarian mass movements in the Soviet Bloc even without Facebook.

I offered my complaint about Erik Brynjolfsson and Andrew McAffee Race Against The Machine yesterday, but I also want to praise one extremely important insight in the book that really changed my way of thinking about something. This is what they call “the back half of the chessboard” and they derive it from an old story about a Persian king who makes a deal in which he promises to pay someone as follows. On the first day, one grain of rice is placed on one square of a chessboard. On the second day, two grains go in the second square. On the third day, four grains go in the third square. On the forth day, it’s eight grains in the forth square. The king agrees, and of course it turns out that 2^64 grains of rice bankrupts the kingdom. But the point about the back of the chessboard is that even though the mathematical pattern is evident throughout the process, the actual impact is amazingly backloaded.

The point of this, in terms of technological progress, is that we’ve gotten so accustomed to Moore’s Law that we sometimes overlook the implication that the deeper we get into the chessboard, the bigger the changes. We all know that computers advanced a lot between 1991 and 2011, but we should expect the scale of change over the next 20 years to dwarf those changes. This is a straightforward application of a well-known principle and some pretty basic math, but it’s usually not discussed in quite the right way. We think we’re used to the idea of rapid improvements in information technology, but we’re actually standing on the precipice of changes that are much larger in scale than what we’ve seen thus far.

Paul Krugman says he’s been a bit surprised about inflation dynamics during the Great Recession. Of course the people who thought a giant increase in the monetary base would automatically be inflationary have been proven wrong, but we haven’t seen the kind of “clockwise spiral” that would have pushed us below zero:

He attributes this to “[d]ownward nominal rigidity — the great difficulty of actually cutting wages and many prices.” I agree that this is an important factor. But I think an equally important role is being played by the Federal Reserve’s meandering behavior. As Krugman has shown elsewhere, monetary policy near the zero bound is all about expectations and credibility. What I think’s happened is that with Ben “Making Sure ‘It’ Doesn’t Happen Here” Bernanke at the helm, the Fed has successfully embedded the expectation of non-deflation. People (or at least the people who matter) know that the Fed will push the panic button and show Rooseveltian resolve to set things aright. But contrary to what I would have expected three years ago, he’s shown no inclination to reach into the Helicopter Ben toolkit to actively reflate a depressed economy that’s not teetering on the brink of a deflationary spiral. So we kind of bounce along, with no new disasters really striking after the terrible winter of 2008-2009 but no catchup and real recovery either.