Wednesday, December 28, 2011
Tuesday, December 27, 2011
Saturday, December 24, 2011
Thursday, December 22, 2011
Wednesday, December 21, 2011
Yes, in a development that has probably never occurred to Europe's blinkered political leaders but is blindingly obvious to anyone residing in the real world, young, ambitious and dynamic European citizens are escaping from the misery of austerity and seeking a new life elsewhere, often outside the EU. It is hardly worth pointing out the obvious implication - that austerity is even less likely to work if the most productive sections of society are bailing out and leaving the pain behind.
This is neat in all sorts of ways, but what I find intriguing about it is the stark distinction it draws between the collective responsibility of debtor nations and the individual responsibilities of their citizens. So Greece must suffer for its mistakes, otherwise moral hazard will encourage it to behave badly in the future; but of course there is nothing stopping individual Greeks leaving the sinking ship and evading the punishment.
This reminds me of a neat piece of prose on the crisis by John Lanchester, who has made more sense out of this mess than many economists. In a piece published in the London Review of Books last summer, he noted the following:
From the worm’s-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment. I’ve encountered this in Iceland and in Ireland and in the UK: a sense of alienation and incomprehension and done-unto-ness. People feel they have very little economic or political agency, very little control over their own lives; during the boom times, nobody told them this was an unsustainable bubble until it was already too late.
In consequence, people don't feel that the crisis was in any real sense caused by them:
The austerity is supposed to be a consequence of us all having had it a little bit too easy (this is an attitude which is only very gently implied in public, but it’s there, and in private it is sometimes spelled out). But the thing is, most of us don’t feel we did have it particularly easy. When you combine that with the fact that we have so little real agency in our economic lives, we tend to feel we don’t deserve much of the blame.
It's difficult to argue with this. But irrespective of whatever moral responsibility an individual Greek may bear, there is no law whatsoever against him or her leaving the country and starting afresh, washing their hands of the whole mess.
A kind of citizen's default. So much for moral hazard.
Sunday, December 18, 2011
So not a trivial amount of money.
I've been thinking for a while that actually, reducing car use is one of the best ways of increasing living standards. After all, many families on middle to low incomes have one or sometimes two cars, and the associated costs are enormous. Providing people with alternatives, through more public transport investment and traffic calming to make cycling more attractive, would basically make people richer. And that's before we start to consider the environmental benefits.
It's a no-brainer, but of course a very radical change to get people used to. But on the other hand we're going to have to do it one day, so why not start now when we have a bunch of other good reasons to do it, like avoiding a second great depression?
Friday, December 16, 2011
This is important stuff. It carries two broad implications. First, fixing finance alone won't solve the problem. It is an essential pre-requisite of exiting the crisis, but there also needs to be a fundamental shift towards a services-based economy, achieved through state intervention to retrain workers and make the investments needed to hasten the transformation. The private sector won't do it alone, and currently policy, by depressing demand, simply locks us into a downward spiral.
Wednesday, December 14, 2011
According to IS-LM deficit reduction, unless it is counteracted by a dramatic increase in private borrowing (in a credit crunch?) will simply shrink GDP, because this is the way that desired savings get to match desired investment.
So if we really save hard enough, our incomes will shrink enough to make our savings as small as the paltry levels of investment we're currently suffering.
Saturday, December 10, 2011
Thursday, December 8, 2011
Tuesday, December 6, 2011
Monday, December 5, 2011
'via Blog this'
Sunday, December 4, 2011
Wednesday, November 30, 2011
Monday, November 28, 2011
Saturday, November 26, 2011
'via Blog this'
Thursday, November 24, 2011
Wednesday, November 23, 2011
There is a deep irony in all of this. Germany spent close to two decades being lectured by the Anglo-Saxons about 'reform' - the German social market economy, based on social partnership, long-term investment, strong social protection and a heavily regulated service sector, were singled out by neoliberals as the reason for Germany's weak economic performance after reunification. And Germany did reform - the Hartz measures moved the German social model in a more liberal direction, permitting the creation of more low skilled and low paid jobs and reducing welfare entitlements, at least for some workers. And lo and behold, Germany quickly shed its reputation as the sick man of Europe and is once again calling the shots in Europe.
How much of this is down to 'reform', rather than Germany's rather conservative consumer culture, is a difficult question to answer. However, one simple point that can be made is that Germany is not the only country in Europe that has 'reformed'. Italy and Spain have both had waves of labour market reform and important institutional changes in financial markets. The obvious implication is that reform is not necessarily a solution to anything, and that we need to be a bit more specific about what reform means.
One good example of this is that the dominant orthodoxy of the last couple of decades has been the deregulated capital markets were good for both stability and growth. Ahem. Germany actually resisted reform in this area (the famous Mannesman takeover by Vodafone led to a more restrictive law), much to the disgust of Anglo-Saxon observers. Meanwhile Spain embraced contemporary financial practice much more enthusiastically, resulting in an unsustainable housing boom which has left the country deeply exposed in the current crisis.
The Euro crisis is bad for everyone, but the pain does not seem to correspond in any consistent way with the extent of reform in the various European countries. It is not easy to see how more of this ill-defined reform is going to solve the problem.
Tuesday, November 22, 2011
Blurb: Monti’s appointment fits an established Italian pattern: fiscal laxity under populist center-right governments followed by brief emergency periods of technocratic austerity under the center-left and EU. To make fiscal responsibility stick this time, Brussels should back Monti as he builds up a popular mandate for gradual reform.
Friday, November 18, 2011
Thursday, November 17, 2011
Yes, couldn't agree more. So, these reforms are....? Well, he doesn't say, but he does mention that 'Putting the European Central Bank’s printing presses to work... would have dire consequences, both raising inflation and dissipating vitally important incentives for reform'.
Wednesday, November 16, 2011
Monday, November 14, 2011
Sunday, November 13, 2011
'via Blog this'
Saturday, November 12, 2011
He leaves behind a country on its knees, and still in denial for the most part about what is happening. Maybe Monti can start by telling people the truth - will Italy be able to face it?
Friday, November 11, 2011
Thursday, November 10, 2011
Tuesday, November 8, 2011
(spread with German bonds, Bloomberg)
Today is a big day. Berlusconi could survive today's vote, in part because the opposition may well abstain to avoid the technical difficulties resulting from the failure to approve last year's government accounts. But even the Northern League is now calling for him to resign. It may take a few days yet, but I'll be putting some champagne in the fridge (or maybe Prosecco).
Monday, November 7, 2011
Anyway, I think Silvio may well go tomorrow, if the vote in parliament on the government accounts doesn't produce a majority. If not, with bond yields hitting their Euro-era record today, it can't be much longer.
Sunday, November 6, 2011
Unfortunately, the main reason I started blogging - the financial crisis and the resulting recession/depression - is also still here. Three years on, things look increasingly desperate, and we're still a long way from the kind of political transformation that I fondly imagined would take place once the failures of free market idolatry were revealed to all.
By the way, my first post was a celebration of Obama's election victory, and shortly after I mused on the consequences of Britain's decision to stay out of the euro.
Friday, November 4, 2011
Wednesday, October 26, 2011
Monday, October 24, 2011
Thoma points out that the US economy hasn't, by any serious measure, prospered as a result of the declining fiscal burden faced by the super-rich. But his argument also receives strong support from comparative analysis. A quick look around the advanced world shows that the most unequal societies are also the worst performers in the post-crisis scenario. In Europe, egalitarian Sweden, Holland and Germany are the strongest performers, whilst less progressive economies such as Ireland, Greece and Italy suffer (not to mention the UK). In North America, Canada is in much better shape than the US.
Friday, October 21, 2011
Tuesday, October 11, 2011
Saturday, October 8, 2011
Although it's important to make these arguments, and Chang does a great job of it, the dominant feeling I'm left with is dejection and frustration. Why? Because what Chang is arguing is almost self-evidently true, and should barely need saying. Indeed, 25-30 years ago much of what he argues in the book constituted the conventional wisdom. Yet the idea that markets are social constructs, that regulation is a politically loaded issue, that individual productivity is not really individual, have now become quite radical things to say.
What more interesting is the apparently unselfconscious Orientalism of Greenspan's assessment of the Southern countries. Greenspan's analysis of the North-South divide in Europe goes as follows:
There remains the question of whether most, or all, of the south would ever voluntarily adopt northern prudence. The future of the euro beyond a select group of northern countries with a similar culture will depend on the ability of all eurozone nations to follow suit.
What would this 'similar culture', based on 'northern prudence', involve? Well, for a start it presumably doesn't involve the Anglo-Saxon recklessness exhibited by Northern European countries such as Britain, Ireland and Iceland. So we are talking about particular areas of the North whose prudence is expressed in wage restraint and sound public finances: the countries generally referred to in the comparative political economy literature as 'social democracies'. So Alan comes out as an unexpected fan of large public sectors, high and progressive taxation, and strong trade unions. Who knew?
The counterpart of course is Southern fecklessness. Here we go back to a common refrain of blaming poor economic performance on climate. Greenspan cites approvingly the following words from Kieran Kelly:
if I lived in a country like this [Greece], I would find it hard to stir myself into a Germanic taxpaying life of capital accumulation and arduous labour. The surrounds just aren’t conducive.”
Never mind that the average yearly working hours of a Greek employee are the highest in Europe. It's just so hot, how can they ever do any work? A notion that nobody ever applies to Texas or Florida.
It's barely worth the effort of outlining all the ways in which Greenspan is wrong. But the fact that this kind of sub-racist nonsense can be given space in one of the best newspapers around is a sign of the times. The times are ugly, and what we thought was true wasn't. So why not just blame problems on those suffering them? It's a lot easier than trying to work out what went wrong, and admitting that powerful men like Greenspan didn't have the faintest clue what they were talking about.
Friday, October 7, 2011
Tuesday, October 4, 2011
The clearest statement on political market efficiency I can think of is Donald Wittman's The Myth of Democratic Failure. The interesting bit about Wittman is that he makes two ambitious (to my view implausible) claims: that the rational actor model explains politics well, and that an effective and 'efficient' democracy can be explained in rational actor terms. The resulting text is an entertaining lesson in the usefulness of functionalist reasoning and ad hocery wheeled out in support of a notionally deductive theory resting on individual rational action.
But political science also makes less strong claims about democratic efficiency as a matter of course. The notion that governments could fleece the population systematically is rarely entertained. Yet at the moment this is what seems to be happening across the advanced world, with little in the way of organized reaction (as yet).
Which is the key - 'organized reaction'. Democracy requires organization - leaving political action to isolated individuals doesn't get us very far. And the difficulties of organization - the free rider dilemma, the danger of hierarchy, the asymmetric access to political influence - produce colossal inefficiencies in the political market. Political scientists need to start thinking about how these inefficiencies, coupled with economic disaster, could destabilize what we assume to be well entrenched democratic institutions.
Monday, October 3, 2011
Munchau used to be a measured, cautious and conservative commentator. The fact that he is using such strong language these days totally freaks me out.
Sunday, October 2, 2011
Greece and some other countries have serious budget difficulties. But most of the European periphery also faces a current account crisis – something has to be done to increase exports or reduce imports or both. If the exchange rate can’t depreciate, wages won’t be cut, and “fiscal devaluation” proves unworkable, activity in these economies will need to slow down a great deal in order to reduce imports and bring the current account closer to balance – unless you (or the Germans) are willing to extend them large amounts of unconditional credit for the indefinite future.
And as these economies slow down, their ability to pay their government debts will increasingly be called into question.
Wednesday, September 28, 2011
Scharpf's argument was that Keynesianism in one country was dead. The response of mainstream social democracy was to adopt orthodox fiscal and monetary policies which, depending on the reading, would either secure full employment, or at least prevent the worst outcome - 70s style stagflation. The idea was that stability could be achieved by national governments in the context of globalization by following the right policies.
The crisis has blown that idea out of the water. Although Greece is the exception that proves the rule, governments in many countries - Ireland, Spain, even the UK at a stretch - were actually ticking all the boxes, and were still roundly screwed by the crisis. The reason for this was that mobile capital creates such a high degree of uncertainty and volatility that government policies, no matter how carefully designed and credible, cannot compensate for the shocks financial flows bring about.
The conclusions we can draw are, in my view, point in diametrically opposite directions. We can pessimistically take this as a given, and design even tighter and more credible fiscal and monetary institutions to lock in stability and stave off financial volatility. Might work for Germany, I guess, but in the end it's only a matter of time before those rules too would be torn apart by financial shocks.
Alternatively, we can bring back capital controls. Now the technicalities of how this would work are not my area of expertise, and I doubt it is straightforward. However the alternative (see above) is surely worse. If even hyper credible commitments and ultra rigorous decision-making rules don't protect you from shocks, than it's hard to see what else can be done, save all of us attempting to become little westernized Chinas with 40% savings rates (yes, exactly).
So, it's got to be back to some updated form of Bretton Woods. That, or a descent into chaos.
"We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists"
20 years ago Fritz Scharpf developed this argument more systematically through a comparative study of four European economies, which concluded, like Callaghan, that Keynesianism was finished. The alternative, which Labour eventually developed under Blair and Brown, was to adopt strict fiscal and monetary policies to entrench macroeconomic stability and low inflation. The disastrous failure of this model makes 1976 look like the good old days.
So Ed could do with saying:
"We used to think that you could cut your way out of a recession, and increase employment by reducing Government spending. I tell you in all candour that that option no longer exists"
It's a tough sell, but to refuse the challenge condemns Labour, should it win, to the kind of centrist no man's land Obama finds himself in. The electorate have to be told what is going on, however counter-intuitive it is. There is nothing to gain by offering a softer version of Cameron's Hooverism.
Monday, September 26, 2011
This of course will not happen, because the prevailing ideology is still that financial markets are rational and not prone to the damaging bouts of euphoria and gloom which come close to destroying the Eurozone. The only certainty is that the current approach will fail. What happens after that is anyone's guess.
Friday, September 23, 2011
Obviously, it is hardly Quiggin's job to explain the politics: that should be down to us. What can political science offer? Well, for me the direction must be in reviving that old-fashioned approach to the study of politics that sees it as the study of collective action, of institutions, and which seeks to explain institutions in terms of genuinely political variables, rather than reducing them to aggregates of individual maximizing decisions. Here I can self-interestedly cite political parties as key intermediaries between social interests and political institutions. Why did political parties buy into the zombie ideas Quiggin dissects when there should have been obvious gains for any politician that could offer something better?
A couple of ideas occur to me. First, that democracy has been associated historically, in the classic modernization formulation, with the emergence of a large middle class and lower inequality (which sustains power-sharing, as in Boix's game theoretic account). On this reading, we could suggest that increased inequality also undermines democratic institutions in such a way as to reinforce the hierarchical and oppressive dimension of market capitalism. This would be a social-structural explanation for the success of regressive ideas.
Next, the parties literature documents a secular decline in the organizational strength and mobilization capacity of political parties. This limits the ability of elected politicians to mobilize resources to challenge free-wheeling capital. In this sense, there is a problem with the organizational infrastructure necessary to sustain economic interventionism, so that parties give up on non-zombie ideas. This is a modified resource mobilization theory.
Finally, social and cultural changes may affect the degree to which people can be convinced of policy ideas which are probably in their interests, but simply do not resonate (or maybe even dissonate). Individualization makes people reluctant to throw in their lot with others, and therefore resistant to social democratic ideas, even when all the evidence suggests that for most people these ideas are obviously in their interests. The metaphor that comes to mind is the angry driver in the traffic jam, railing against the other drivers rather than thinking of a collective solution that would get everyone to work on time at a fraction of the cost. This would be normative-culturalist (false consciousness?) explanation of the success of zombie ideas - they may be wrong, but they should be right.
As an after-thought, all of this offers a hint about the weird anti-science trends we're seeing these days, especially in the United States. Man-made global warming may be right, but to believe in it, for most people, is a leap of faith, involving trust in institutions (universities, the scientific professions, the government). If the patterns identified above are a problem for economic ideas, then why shouldn't they be a problem for other theories about how the world works? Bachmann's campaign against the HPV vaccine is probably no different in its essence than trickle-down economics or any of the other zombie ideas which are almost certainly wrong, yet politically enjoy the gift of eternal life.
Thursday, September 22, 2011
Irony of ironies: this is probably our best bet for a policy change in the right direction. Ultimately, markets do want austerity, but in the Augustinian sense: they also want growth, and if growth requires printing money and running deficits, they want that too. Just not printing money and running deficits in currencies they're holding.
Wednesday, September 21, 2011
First, I'm pretty sure the current arrangements challenge even the softest forms of rational choice theory. Whichever way you look at it, the choice for pain in the present for no certain benefit in the future has something self-defeating and masochistic about it, particularly since the pain doesn't even net out into clear benefits for any sub-group within the economy.
Second, it confirms the power of dominant ideas, and the difficulty of getting rid of these ideas when they have been proven wrong (see Quiggin's wonderful Zombie Economics). After all, you could hardly hope for a better disconfirmation of the policy mix (basically unquestioned in elite circles before 2008), based on financial deregulation, central bank independence and privatization, than what is happening now. Yet we still hang on to these failed ideas, in a way which is starting to look like the Polynesian cargo cult - policy-makers lay out the same prescriptions that seemed to work before 2008, and patiently wait for the crisis to end.
Finally, it illuminates the crucial role in all of this of political parties as intermediaries between policy and the public response. People are clearly hugely pissed at what is going on, yet there is no real policy alternative being presented by existing political parties, hence the lack of policy change. At some point, public anger will elicit some response from elected politicians, but in the meantime they continue to preside over an economic disaster, and in some cases have managed to mobilize popular discontent in favour of policies that are certain to fail miserably (see the entire Republican party in the US).
All this suggests we need to fundamentally rethink our models of democratic politics. I'll just throw that out there, because for now I have only the vaguest idea about how we are supposed to do this.
Saturday, September 17, 2011
Thursday, September 8, 2011
Yet we're still involved in this silly game about deficits and fiscal targets. That way lies madness. Money has to be brought under political control here, or the whole financial system will collapse. Moreover, that political control cannot be the creditor nations bossing the others around - they're are as much to blame as anyone else.