Sunday, July 29, 2012

Krugman, Draghi and Bumblebee Myths

Paul Krugman notes:
Given the tsunami of reporting about Mario Draghi’s remarks last week, not to mention the huge market reaction, it’s kind of strange how few links I’ve seen to what he actually said, which is considerably stranger than you’d gather from the coverage — and has a definite plaintive note, too.

Here’s the passage that caught my eye:
The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.
Only considerably later did he make the declaration that the ECB would do “whatever it takes” — a declaration everyone seized on, but which may mean little.

It's interesting that Krugman the disseminator of Keynesian myths, misses Draghi myth spreading. There is no mystery as to why the bumblebee is able fly. Wikipedia explains the situation accurately:

According to 20th century folklore, the laws of aerodynamics prove that the bumblebee should be incapable of flight, as it does not have the capacity (in terms of wing size or beats per second) to achieve flight with the degree of wing loading necessary. The origin of this claim has been difficult to pin down with any certainty. John McMasters recounted an anecdote about an unnamed Swiss aerodynamicist at a dinner party who performed some rough calculations and concluded, presumably in jest, that according to the equations, bumblebees cannot fly....
The calculations that purported to show that bumblebees cannot fly are based upon a simplified linear treatment of oscillating aerofoils. The method assumes small amplitude oscillations without flow separation. This ignores the effect of dynamic stall, an airflow separation inducing a large vortex above the wing, which briefly produces several times the lift of the aerofoil in regular flight. More sophisticated aerodynamic analysis shows that the bumblebee can fly because its wings encounter dynamic stall in every oscillation cycle.

Even more baffling, and Krugman does not comment on this either, Draghi seems to think that a bumblebee is something akin to a caterpillar that only later grows into a full bee. This is simply greater bizarre commentary by Draghi, once a bumblebee develops from larvae into a bumblebee and it stays a bumblebee.

Indeed, Krugman seems to buy into this Draghi bumblebee myth with the same relish he buys into Keynesian aggregate demand myth. He writes:
And as for graduating to a real bee — that will take time that Europe doesn’t have.
What the hell are these clueless, uniformed, characters talking about?


  1. I have been reading some market bears laughing at Draghi, that he is powerless.

    Most say they don't understand the euphoria or excitement, why the market is up so much the last 2 days.

    IMO they miss that the market was not driven up by euphoria of the longs, it was short-covering by greedy and fearless shorts.

    I read 2/3 of S&P shorts have been covered in the last 3 sessions.

  2. @anon 10:42 how do you know they are greedy or fearless and I guess why does it even matter? Greed and fear are part of the human condition and thus will be a natural part of any market. The market deals very well with both of them when they get out of control.

  3. >>The market deals very well with both of them when they get out of control.

    Exactly, that's what has happened the last 2 days

  4. Well, when your economic arguments get to the point of being absurd a change of venue to throw off those whose expertise lies in economics is helpful in temporarily beating back

    In other words, makin ridiculous analogies in fantasy land is a good distraction from your own failure to reason.

  5. Draghi must be related to Greenspan.