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Thoughts from the Frontline

The Lion in the Grass

July 21, 2012

Choose your language

The Seen and the Unseen

"In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

"Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

- From an essay by Frédéric Bastiat in 1850, "That Which Is Seen and That Which Is Unseen"

I have been captivated by the concept of the seen and the unseen in economics since I was first introduced to the idea. It is a seminal part of my understanding of economics, at least the small part I do grasp. The idea was first written about by Frédéric Bastiat, who was a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of…

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July 26, 2012, 9:24 p.m.

While discussing currencies how do we ignore that we are in a floating rate environment. Comments like Yen will crash have no meaning when the rate of USDJPY is not to relfect its intrinsic worth but pure demand supply or capital flows.

Fred Pollack

July 25, 2012, 4:50 a.m.

Here is a FT Alphaville blog post that puts Mauldin’s comments on France in perspective:

Fred Pollack

July 24, 2012, 6:22 p.m.

The Short View column in Wednesday’s FT has relevant info on France.  Here is an online link to the article:
Small excerpt:
      “France the bellwether for the eurozone

In the market for credit default swaps, France holds the yellow jersey.
In theory, if France defaulted tomorrow and bond creditors received nothing, a net $23bn would be paid out to those investors who bought such swaps, which in effect insure against such an event. This would be far more than for any other single entity, whether a sovereign or a corporation.
By twists of fortune, credit derivatives on France occupy a peculiar position, being a cheap way to take a view on the eurozone turmoil. After France comes Germany with $22bn and Italy with $20bn.”

The embedded video in the article is worth a listen, if you have time.

Tim Glavin

July 24, 2012, 12:50 p.m.

Great article.

There is an implication in the “lions in the grass” analogy that to be a good economist, one need only look hard for the hidden lions.

Another analogy (stolen from Thomas Sowell in his “Intellectuals and Society”) would compare intellectuals (economists in particular) to the crew on the bridge of the Titanic sailing “full spead ahead”, complacent in their knowledge that they have more seafaring knowledge than the totality of their passengers. It is not enough to say that they don’t know where the icebergs are, or even that they haven’t looked hard enough. They can’t know where the icebergs are.

Perhaps the good economist is one who knows not to impose planning from the top because he can’t ever foresee the indirect consequences of economic policy.

Barton Fleming

July 23, 2012, 7:44 a.m.

As a now senior citizen actuary, I am intrigued with the success experienced by the governments of Japan and now the United States in keeping interest rates down.  We have almost two hundred years of interest rate data, and this is unprecedented.  How long will it be before the world’s politicians start paying attention to what may be a new way to keep the cost of government borrowing down?

chip rohlke

July 23, 2012, 7:40 a.m.

Funny but evertime I read your newsletter I’m glad I put my $$ into deeply discounted real estate in Melbourne & Vero Beach Florida. Buying at half replacement cost with strong cash flow after financing, taxes etc. seems to be a pretty good move though I’m finding fewer deals these days.
As far as Europe I still think the end game is going to be domino defaults with major social/political effects as the spending issue from government largess is never really addressed culturally. Seems once you let that spirit out of pandora’s box there’s no going back. The cycle will continue with shorter & shorter time periods. How that plays in an increasing islamicized euro culture is going to be interesting.
I’m not sure any democracy is good at cutting spending but great at increasing it.There’s just no political incentive. Maybe that’s one reason we are supposed to be a republic not really a pure democracy. Republics are bulit on unchanging principals…“Endowed by our Creator with inalienable rights” etc. but America seems to have lost that foundation so I doubt unless we get it back that ultimately things will end well here either.

Derek emery

July 23, 2012, 6:50 a.m.

Could Greece be the first domino to fall and about to leave the Eurozone as both the IMF and Berlin have refused fresh aid according to Spiegel?

Dutoit Leon

July 23, 2012, 12:12 a.m.

The funny thing in your debt prospects is that you see everyone taking refuge in London, but UK is the country with the worst debt prospects !
This will have no consequence on fiscal policy ?

Keith Sedergreen

July 22, 2012, 8:35 p.m.

How about France and Italy sell some gold! They both hold roughly 2,500 tonnes of the stuff, which would reduce their debt in a big way. Maybe China could buy it with their huge FX reserves…...just a thought(pardon the pun John)!

Tom Dietsche

July 22, 2012, 9:43 a.m.


I was able to find what looked most like a hidden lion, but the image is so low-res that I could not confirm it.

I have the same problem with a lot of the graphs you include. They are great, but too low res and small so the captions usually cannot be read.

Trying to magnify them just results in blurry, unreadable pixels. I run into this with a lot of your images.

So, a suggestion: include a link to a high-res copy of the same image, on your web site.

This would not make the emails any bigger, but would give us old folks with weak eyes a way to actually see the lions and graph captions.

Thanks, a devoted reader,
Tom Dietsche

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