As I (and I think many other economists) see it, banks are a clever but somewhat dangerous form of financial intermediary, one that exploits the law of large numbers to offer a better tradeoff between liquidity and returns,

But this is quite comprehensively wrong, even within the neoclassical picture. This is essentially narrative one, when even his fellow neoclassicals have moved beyond that to narrative two in their actual academic work. For that matter, I strongly suspect that Krugman has so as well in his actual academic work, just as I suspect that many of his fellow-travelers who model narrative two are actually conceptually stuck in narrative one.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.