Knowledge comes into us through a variety of channels that can be blocked by our concern for status, and the successful knowledge-seeker will be one who keeps those channels open. The process requires that we be able to “listen,” either literally or figuratively, to what others say. If what they say shows them to be superior to us in knowledge, we will be hampered in our learning if our first reaction is to try to show that we know as much as they or more. The process also requires that we be corrigible, that we be open to the possibility that our opinions are in some way misguided.

In the 13th century, the Chinese emperor Kublai Khan embarked on a bold experiment. China at the time was divided into different regions, many of which issued their own coins, discouraging trade within the empire. So Kublai Khan decreed that henceforthmoney would take the form of paper.


It was not an entirely original idea. Earlier rulers had sanctioned paper money, but always alongside coins, which had been around for centuries. Kublai’s daring notion was to make paper money (the chao) the dominant form of currency. And when the Italian merchant Marco Polo visited China not long after, he marveled at the spectacle of people exchanging their labor and goods for mere pieces of paper. It was as if value were being created out of thin air. 


Kublai Khan was ahead of his time: He recognized that what matters about money is not what it looks like, or even what it’s backed by, but whether people believe in it enough to use it. Today, that concept is the foundation of all modern monetary systems, which are built on nothing more than governments’ support of and people’s faith in them. Money is, in other words, a complete abstraction—one that we are all intimately familiar with but whose growing complexity defies our comprehension.


For me, one of the more interesting tracks of the Aspen Ideas Festival is the series of conversations about education. Aspen is the natural habitat of America’s overconfident plutonomy: the kind of people who are convinced that since they have been successful themselves, they are therefore qualified — more qualified than education professionals, in fact — to diagnose problems and prescribe solutions. The ultimate example of this in recent weeks was the firing of Teresa Sullivan as president of the University of Virginia, by rich trustees who had no substantive beef with her at all. Instead, they just didn’t like her reluctance to sign on to various inchoate strategies, which sound great in a mass-market leadership book but which are unlikely to be particularly helpful in the context of a venerable educational institution.

These people have all read their Steve Brill, and have watched (or even funded) Waiting for Superman. They’re generally convinced that bad teachers are The Problem, and seem to think that that reforming the nation’s education system is a task somehow akin to akin to remaking General Electric. Measure everything, work out who’s good and who’s bad, and fire the underperformers: half of the problem is solved right there. Then, look at the great teachers, the inspirational ones, and the ed-tech innovators. If America’s remaining teachers just take a leaf out of their books, and start doing the things that work really well, that’s the other half of the problem addressed.

This year, however, the tone of the discussion was different — not least because the American Federation of Teachers appeared on the list of corporate underwriters, alongside the likes of Ernst & Young, Mercedes Benz, and Pepsico. (And Thomson Reuters, too.) The AFT is all too often considered to be some kind of reactionary force of darkness, interested only in ensuring that all teachers, no matter how bad, have jobs for life. But with the AFT literally setting the agenda at Aspen, that changed in constructive ways.

Education is horribly complex, but I think it’s still possible to put together a stylized model of the main forces at play. The dramatis personae would look something like this:

Investors haven't warmed up to Corrections Corp. of America. But they should, especially if it becomes a real-estate investment trust.

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Corrections Corp. of America isn't exactly in a warm and fuzzy business.

Krugman is puzzled by the European Central Bank:

I’ve been hearing various attempts to explain the ECB’s utterly bizarre refusal to cut interest rates... The most popular story seems to be that the ECB wants to “hold politicians’ feet to the fire”, letting them know that they won’t get relief unless they do what’s necessary (whatever that is). This really doesn’t make any sense. If we’re talking about enforcing austerity and wage cuts in the periphery, how much more incentive do these economies need?

He is certainly right that if the goal is resolving the crisis, or even price stability, then refusing further rate cuts is mighty strange. But who says those are the goals? His final question is meant to be rhetorical, but it really isn't. Because the more austerity you want, the more enforcement you need.

[....]

It's a tenet of liberalism -- and a premise of the conversation Krugman is part of -- that there are conflicting opinions, but not conflicting interests. But sometimes, when people seem to keep doing things with the wrong outcome, it's because that's the outcome they actually want. Paranoid? Conspiracy theory? Maybe. On the other hand, here's Deutsches Bundsbank president Jens Weidmann:

Relieving stress in the sovereign bond markets eases imminent funding pain but blurs the signal to sovereigns about the precarious state of public finances and the urgent need to act. Macroeconomic imbalances and unsustainable public and private debt in some member states lie at the heart of the sovereign debt crisis. It may appeal to politicians to abstain from unpopular decisions and try to solve problems through monetary accommodation. However, it is up to monetary policymakers to fend off these pressures.

That seems pretty clear. From the perspective of the central banker, resolving the crisis too painlessly would be bad, because that would allow governments to "avoid unpopular decisions." And it's true: If there's something you really want governments to do, but you don't think they will make the necessary decisions except in a crisis, then it is perfectly rational to prolong the crisis until you see the right decisions being made.

MMFs’ stable NAVs and the methods used to keep them steady in normal times also make the funds susceptible to runs in unusual times, and these runs pose broad systemic risks. In part, these risks arise because the historical record of MMFs keeping NAVs steady (only two money funds have “broken the buck” since 1983, when the SEC adopted rule 2a-7) has attracted a large, highly risk-averse shareholder base that includes many institutional investors. These shareholders reportedly place great value on principal stability and are prone to fleeing money funds quickly at any sign of trouble.