Raghuram Rajan expands on this conclusion:

On a recent visit to Europe, I found economists, journalists, and business people thoroughly frustrated with their politicians. Why, they ask, can’t politicians see the abyss that yawns before them, and come together to resolve the euro crisis once and for all?

Even if there is no consensus on what a solution might be, can’t they meet and thrash out a plan that goes beyond their repeated half-measures? It is only because of the European Central Bank’s bold decision to lend long term to banks that we have seen some respite recently, or so their argument goes. Politicians, in contrast, are failing Europe by being forever behind the curve. Why do they find it so hard to lead?

One answer that can be easily dismissed is that politicians simply don’t understand the gravity of the situation. Political leaders need not be economic geniuses to understand the advice that they hear, and many are both intelligent and well-read.

A second answer – that politicians have short time horizons, owing to electoral cycles – may contain a kernel of truth, but it is inadequate, because the adverse consequences of timid action often become apparent well before they are up for re-election.

The best answer that I have heard comes from Axel Weber, the former president of Germany’s Bundesbank and an astute political observer. In Weber’s view, policymakers simply do not have the public mandate to get ahead of problems, especially novel ones that seem small initially, but, if unresolved, imply potentially large costs.

If the problem has not been experienced before, the public is not convinced of the potential costs of inaction. And, if action prevents the problem, the public never experiences the averted calamity, and voters therefore penalize political leaders for the immediate costs that the action entails. Even if politicians have perfect foresight of the disaster that awaits if nothing is done, they may have little ability to persuade voters, or less insightful party members, that the short-term costs must be paid.

Talk is cheap, and, in the absence of evidence to the contrary, the status quo usually appears comfortable enough. So leaders’ ability to take corrective action increases only with time, as some of the costs of inaction are experienced.

Calamity can still be averted if the costs of inaction escalate steadily. The worst problems, however, are those with “inaction costs” that remain invisible for a long time, but increase suddenly and explosively. By the time the leader has the mandate to act, it may be too late.

[This is the example that always comes to my mind, too]

A classic example was Winston Churchill’s warnings against Adolf Hitler’s ambitions. Hitler’s plans were outlined in Mein Kampf for all to read – and he did not disguise them in his speeches. Yet few in Britain wanted to give them credence, and many thought that communism was the greater threat, especially in the bleak years of the Great Depression. The Nazis’ dismembering of Czechoslovakia in 1938 made the sincerity of Hitler’s ambitions all too clear. But it was only after the invasion of Poland the following year that Churchill was appointed First Lord of the Admiralty, and he became Prime Minister only after the invasion of France in 1940, when Britain stood alone. Britain might well have been better off had Churchill held power earlier, but that would have meant costly rearmament, which was unacceptable so long as there was a chance that Hitler proved to be a paper tiger. And, of course, it would also have meant entrusting Britain’s fate to a politician who, though now regarded as an indomitable leader, was widely distrusted at the time.

Non-linear costs of inaction are most obvious in the financial sector. At the same time, financial-sector problems may be particularly difficult to address: if politicians emphasize the need for action too strongly in order to get a mandate, they might precipitate the very turmoil that they seek to contain.

Between the Bear Stearns crisis and the failure of Lehman Brothers, the United States government could do little to get ahead of the growing problem (though, of course, the government-backed mortgage underwriters Fannie Mae and Freddie Mac were placed under conservatorship in the interim). It took the post-Lehman panic for Congress to authorize the Troubled Asset Relief Program, which threw a financial lifeline to banks and the auto industry, among others. And only frenetic action by the Federal Reserve and Treasury (with authorities around the world joining) prevented a systemic meltdown. A subprime-mortgage problem that was initially estimated to imply losses of a few hundred billion dollars imposed far higher costs on the entire world.

Similarly, eurozone politicians have obtained a mandate to take bolder action only as the markets have made the costs of inaction more salient. Even setting aside Germany’s understandable attempt to limit how much it would have to pay, it is difficult to see how politicians could have gotten ahead of the problem.

While the ECB has bought the eurozone some time, the calming effect on markets may be a mixed blessing. Have Europeans seen enough of the abyss to tolerate stronger action by their leaders? If not, markets might have to deteriorate further to make possible a comprehensive resolution to the eurozone crisis.

Similarly, with government bond yields as low as they are in the US, the public has little sense of urgency about its fiscal problems, though some doomsayers, like Peter Peterson of the Blackstone Group, have been trying their best to awaken it. One hopes that the coming US presidential election will lead to a more enlightened public debate about tax and entitlement reform. Otherwise, a rapid escalation of yields in the bond market might be necessary for the public to accept that there is a problem, and for politicians to have the room to resolve it.

Don’t blame the leaders for appearing short-sighted and indecisive; the fault may lie with us, the public, for not listening to the worrywarts.

Raghuram Rajan is Professor of Finance at the Booth School of Business, University of Chicago, and the author of Fault Lines: How Hidden Fractures Still Threaten the World Economy.

No kidding — he actually said this while campaigning in Colorado.

He also said science has been hijacked by politicians on the left, and that climate change is

“an absolute travesty of scientific research that was motivated by those who, in my opinion, saw this as an opportunity to create a panic and a crisis for government to be able to step in and even more greatly control your life. I for one never bought the hoax. I for one understand just from science that there are one hundred factors that influence the climate. To suggest that one minor factor of which man’s contribution is a minor factor in the minor factor is the determining ingredient in the sauce that affects the entire global warming and cooling is just absurd on its face. And yet we have politicians running to the ramparts — unfortunately politicians who happen to be running for the Republican nomination for president — who bought into man-made global warming and bought into cap and trade.”

While Santorum isn’t alone in asserting that human activity has next to nothing to do with climate change, his analysis of why the housing bubble burst is, as far as I know, unique. As I can’t think of any political reason for him to make this assertion, I conclude that this is what he actually believes. Should he become president, his economic policies would, therefore, likely be — how shall I put it? — unique.

Just in case, make sure your passport won’t expire before election day. It would be better to live in a country whose head of state doesn’t reside in an economic fantasyland (apologies to Disneyland).

The above is the concluding sentence of a New York Times editorial criticizing Mr. Obama for deciding to take super-PAC money. In an ideal world, of course, there wouldn’t be any of these Supreme Court-created monsters threatening our democracy. But that’s not the world we live in.

Here’s the rest of the editorial:

Two years ago, while delivering his State of the Union address, President Obama looked the Supreme Court justices in the face and told them they were wrong to have allowed special interests to spend without limits on campaigns. “I don’t think American elections should be bankrolled by America’s most powerful interests,” he said. “They should be decided by the American people.”

On Monday, the president abandoned that fundamental principle and gave in to the culture of the Citizens United decision that he once denounced as a “threat to our democracy.”

His aides announced that the Obama campaign would begin to assist the “super PAC” that can raise and spend unlimited sums to support the president’s re-election effort. Even White House and cabinet officials are expected to appear at fund-raising events for Priorities USA Action.

The announcement fully implicates the president, his campaign and his administration in the pollution of the political system unleashed by Citizens United and related court decisions. Corporations, unions and wealthy individuals are already writing huge checks — with no restrictions — to political action committees supporting individual candidates, which have become bag men for campaigns that still nominally operate under federal limits.

As misguided as it was, the Citizens United decision naïvely believed that the super PACs would remain separate from individual campaigns. The White House’s decision to allow insiders like Kathleen Sebelius, the health and human services secretary, and Jim Messina, the Obama campaign manager, to speak at Priorities USA Action events shows how ludicrous that notion has become, raising questions about whether the law is being violated.

Up to now, Republicans have been the main defenders of this corrupt system, and the main beneficiaries of it. Two of Karl Rove’s political groups raised $51 million last year to use against Mr. Obama and other Democrats, and the Republican presidential candidates’ PACs have raised $40 million.

Priorities USA Action and other Democratic groups have raised only $19 million. And, as Mr. Messina wrote on the Obama campaign’s blog, “with so much at stake” Democrats decided that they would not “unilaterally disarm.”

But if President Obama had refused to join in this downward spiral — and if he had proudly campaigned on that refusal — he and his campaign might have made up for that deficit in other ways: with more small contributions, and more support, from a public disgusted by the outsize influence of big money.

A president has a megaphone bigger even than Mr. Rove’s bloated bank account, and Mr. Obama could have impressed many wavering voters if he had chosen to use it against campaign corruption. He could have pointed out that it was Republicans who blocked the Disclose Act, which would have ended secret corporate donations, and that it was Republicans who used unlimited corporate funds to win back the House in 2010, pressing a corporate agenda that has severely hurt the middle class.

He could have ridiculed Mitt Romney’s super PAC for accepting $18 million from just 200 donors in the second half of last year, including million-dollar checks from hedge-fund operators, industrialists and bankers.

But now Mr. Obama has given up that higher ground. He had already undermined the public financing system for presidential campaigns by refusing to use it in 2008, but this is much worse. In that campaign, he at least forswore money from independent groups and lobbyists. Now he is relying on a super PAC that can accept money from anyone.

After such a long wait for healthy job growth, only a curmudgeon would deny the good news.

The Journal editorial asserts that the “the economy’s natural recuperative powers” and the “the gridlock that arrived a year ago with the Republican House” are responsible for the improvement in the labor market:

Why the better news now? One likely reason is that the U.S. economy is so large and dynamic that left to its own devices it is bound to expand. After such a long trough, the economy’s natural recuperative powers are taking hold.

Washington has also stilled some of its damaging impulses, at least temporarily, thanks to the gridlock that arrived a year ago with the Republican House. Regulators are still doing damage, but less than they would have without new political scrutiny, and Congress has stopped spending more and ceased doing active harm.

In a nutshell, the most powerful voice of American conservatism is saying that the economy is improving in spite of and not because of the Obama Administration’s economic policies and programs.

Talking about role reversal! No longer does Obama have to persuade the people that, had it not been for his policies and programs, the economic recovery would have been even more anemic. Now, his Republican opponent — presumably Romney — has to convince the people that, in the absence of these policies and programs, the economic recovery would have been more robust.

The shoe is on the other foot. The tall order is now faced by the Republicans, not the Democrats. The likelihood of a second term for Mr. Obama has risen. So has the likelihood that the Democrats will retain control of the Senate. Finally, the possibility that the Democrats will regain control of the House is no longer remote.

The eurozone should gradually climb out of its mild recession in the second half of this year and into 2013, in Standard & Poor’s opinion. We think core countries will lead the way, with other member countries delivering diverging performances. Under our baseline forecast for 2012-2013, which we updated at the end of 2011, we project flat GDP for the eurozone as a whole in 2012 and 1% growth in 2013.

We acknowledge, however, that risks of a steeper downturn this year have risen. We currently assign a 60% probability to our baseline forecast, versus 40% for our alternative forecast of a true double dip, which would have a particularly adverse impact in countries like Spain, Portugal, and Italy. We believe three main factors will determine the depth of the eurozone’s downturn:

• How demand from emerging markets holds up in the coming quarters;
• How European consumers react to renewed uncertainties, such as rising unemployment and concerns about the sovereign debt crisis; and
• How European governments and especially the European Central Bank (ECB) rekindle investor confidence in capital markets in the next few quarters.

Still, we think the scale continues to tilt in favor of a mild recession and a gradual return to growth, taking into account potential growth in emerging market demand, resilient consumer demand in the core countries, and somewhat restored investor confidence.

With the exceptions of  two Republicans – Tom Coburn (Okla.) and Richard Burr (N.C.) – and one Democrat — Jeff Bingaman (N.M.) — the Senate passed the STOCK Act.

The STOCK Act calls for members of Congress to report stock and other financial transactions within 30 days and require that these filings be available online. It also requires members of Congress, their staff and about 2,000 top policymakers in the executive branch to publicly disclose the terms of home mortgages. And an amendment by Senator Richard Shelby (R-Ala.) was adopted requiring securities trades and financial disclosure statements for about 3,000 executive branch employees to be published online.

US corporate profits have grown at an 8% annualized rate over the past two decades.This has pushed profit margins to all-time highs using both S&P 500 and national income and product account (NIPA) data . . . Basic economic intuition suggests that high profit margins should eventually mean-revert, as excess returns are competed away via higher investment or a swing back in the income distribution from capital to labor. But while this may be the right long-term story, the forces of mean-reversion still look weak over the next couple of years, and a modest further NIPA margin expansion seems more likely.

The best name for this company is obvious: URI-NATION.

Now, that’s recycling!