The ECB should focus on the threat of deflation rather than maintaining austerity

The European Central Bank will hold its latest policy meeting today. Ahead of the meeting, David Woodruff writes that while growth has resumed in the Eurozone, there are still serious problems across the single currency area, with unemployment at exceptionally high levels in several countries. He argues that the ECB’s primary focus should be on preventing deflation, and that it should look beyond a narrow preoccupation with deficit reduction and austerity policies

An Optimal Algorithm for the Distinct Elements Problem

We give the first optimal algorithm for estimating the number of distinct elements in a data stream, closing a long line of theoretical research on this problem begun by Flajolet and Martin in their seminal paper in FOCS 1983. This problem has applications to query optimization, Internet routing, network topology, and data mining. For a stream of indices in {1,...,n}, our algorithm computes a $(1 \pm \epsilon)$-approximation using an optimal $O(1/\epsilon^{-2} + log(n))$ bits of space with 2/3 success probability, where $0<\epsilon<1$ is given. This probability can be amplified by independent repetition. Furthermore, our algorithm processes each stream update in O(1) worst-case time, and can report an estimate at any point midstream in O(1) worst-case time, thus settling both the space and time complexities simultaneously. We also give an algorithm to estimate the Hamming norm of a stream, a generalization of the number of distinct elements, which is useful in data cleaning, packet tracing, and database auditing. Our algorithm uses nearly optimal space, and has optimal O(1) update and reporting times.Engineering and Applied Science

On the Exact Space Complexity of Sketching and Streaming Small Norms

We settle the 1-pass space complexity of $(1 \pm \epsilon)$-approximating the $L_p$ norm, for real p with 1 ≤ p ≤ 2, of a length-n vector updated in a length-m stream with updates to its coordinates. We assume the updates are integers in the range [–M, M]. In particular, we show the space required is $\Theta(\epsilon^{−2} log(mM) + log log(n))$ bits. Our result also holds for 0 < p < 1; although $L_p$ is not a norm in this case, it remains a well-defined function. Our upper bound improves upon previous algorithms of [Indyk, JACM ‘06] and [Li, SODA ‘08]. This improvement comes from showing an improved derandomization of the $L_p$ sketch of Indyk by using k-wise independence for small k, as opposed to using the heavy hammer of a generic pseudorandom generator against space-bounded computation such as Nisan's PRG. Our lower bound improves upon previous work of [Alon-Matias-Szegedy, JCSS ‘99] and [Woodruff, SODA ‘04], and is based on showing a direct sum property for the 1-way communication of the gap-Hamming problem.Engineering and Applied Science

Ordoliberalism, Polanyi, and the theodicy of markets

Though they are seldom paired, there are important points of contact between the thought of ordoliberals like Eucken and Böhm and that of the idiosyncratic social democratic theorist Karl Polanyi. Like Polanyi, the ordoliberals recognised the crucial historical and contemporary role of the state in creating and sustaining market economies, and the consequent emptiness of the laissez-faire slogan. Some of Polanyi's inter-war analyses of the political use of state power to create monopolies show significant parallels with ordoliberal diagnoses. There were points of contact in moral perspectives as well: both Polanyi and the ordoliberals emphasised that inter-war markets were producing manifestly unjust outcomes, incompatible with any notion of desert. Their reactions, of course, were very different. To put it in Polanyi's terms, ordoliberals accepted that laissez-faire was planned, and argued it needed to be re-planned: more consistently, with the state mobilised to structure markets in ways that ensured market earnings reflected desert. Polanyi, for his part, felt that the state structures underpinning any market order made the very idea of individual desert unintelligible and a barrier to clear thought about how society ought to be organised. This chapter will analyse these parallels and distinctions, and discuss the ways in which Polanyi offers significant resources for analysing ordoliberal positions

Governing by panic: the politics of the Eurozone crisis

The Eurozone’s reaction to the crisis beginning in late 2008 involved not only efforts to mitigate the arbitrarily destructive effects of markets but also vigorous pursuit of policies aimed at austerity and deflation. To explain this paradoxical outcome, I build on Karl Polanyi’s account of a similar deadlock in the 1930s. Polanyi argued that a society-protecting response to malfunctioning markets was limited under the gold standard by the prospect of currency panic, which bankers used to push for austerity, deflationary policies, and labor’s political marginalization. I reconstruct Polanyi’s “governing by panic” theory to explain Eurozone policy during three key episodes of sovereign bond market panic in 2010–12. By threatening to allow financial panics to continue, the European Central Bank promoted policies and institutional changes aimed at austerity and deflation, limiting the protective response. Germany’s Ordoliberalism, and its weight in European affairs, contributed to the credibility of this threat

Governing by panic: the politics of the Eurozone crisis

The Eurozone’s reaction to the economic crisis beginning in late 2008 involved both efforts to mitigate the arbitrarily destructive effects of markets and vigorous pursuit of policies aimed at austerity and deflation. To explain this paradoxical outcome, this paper builds on Karl Polanyi’s account of how politics reached a similar deadlock in the 1930s. Polanyi argued that democratic impulses pushed for the protective response to malfunctioning markets. However, under the gold standard the prospect of currency panic afforded great political influence to bankers, who used it to push for austerity, deflationary policies, and the political marginalization of labor. Only with the achievement of this last would bankers and their political allies countenance surrendering the gold standard. The paper reconstructs Polanyi’s theory of “governing by panic” and uses it to explain the course of the Eurozone policy over three key episodes in the course of 2010-2012. The prospect of panic on sovereign debt markets served as a political weapon capable of limiting a protective response, wielded in this case by the European Central Bank (ECB). Committed to the neoliberal “Brussels-Frankfurt consensus,” the ECB used the threat of staying idle during panic episodes to push policies and institutional changes promoting austerity and deflation. Germany’s Ordoliberalism, and its weight in European affairs, contributed to the credibility of this threat. While in September 2012 the ECB did accept a lender-of-last-resort role for sovereign debt, it did so only after successfully promoting institutional changes that severely complicated any deviation from its preferred policies

Fast Moment Estimation in Data Streams in Optimal Space

We give a space-optimal streaming algorithm with update time $O(log^2(1/\epsilon)loglog(1/\epsilon))$ for approximating the pth frequency moment, 0 < p < 2, of a length-n vector updated in a data stream up to a factor of $1 \pm \epsilon$. This provides a nearly exponential improvement over the previous space optimal algorithm of [Kane-Nelson-Woodruff, SODA 2010], which had update time $\Omega(1/\epsilon^2)$. When combined with the work of [Harvey-Nelson-Onak, FOCS 2008], we also obtain the first algorithm for entropy estimation in turnstile streams which simultaneously achieves near-optimal space and fast update time.Engineering and Applied Science