Monthly Archives: April 2013
As someone who’s appreciation of economics has absolutely no formal basis, I find the current debate about the Rogoff-Reinhart controversy quite surreal. Here are all these economists on both sides of the argument, discussing the relative merits of one form of analysis, versus another, and minimising or exaggerating the effects of a spreadsheet error. This issue is not an abstract philosophical discourse. The issue of how we view our society is of fundamental importance to every person in the world. Trust in our advisors is particularly relevant to Western democracies surviving. We have moved beyond the base economics, and we are talking about the shape of the Western liberal tradition. Over the last ten years or so, the rudder of Western Society has been firmly in the hands of the austerity driven economists, who, via the World Bank, via the ECB and via the Troika in Europe, have not only had the hegemony of policy, but also have esposed a monopoly on knowledge about the so called remedies for recovery. These policies have prevailed while 27 million people are unemployed in the E.U., and the wealth of middle class Europeans and Americans has dissipated.
These policies bear no criticism. In the case of Ireland, this diminutive analysis portrays the entire Irish population as squanderers whose spendthrift ways are deserving of moral opprobrium and of the punitive austerity imposed as a remedy on the entire population. The fact that the gross excesses were limited to a minute proportion of the population, and there were many non-Irish players, including foreign banks with their snouts in the trough, does not seem to influence the Troika or the arbiters of the new order. The fact that much of the so called “Irish” debt was based in other countries, and not truly “Irish” in any real sense of the word, offers no respite. The undisputed fact that the recklessness of the banks contributed to the catastrophe, fails to provide any relief for the indentured population. Paradoxically, the only element of the population that is not suffering are the bankers, who continue their gluttony of bonuses and high salaries, while acting as the very agencies that are imposing penury on the general population.
So back to the debate over the R-R mistakes/omissions or whatever. The problem for me, an ordinary Joe, is not the semantics of the derivative implications of the subtle analysis that was presented. It was not the worry about the extrapolations of high financial equations. It was not even the arithmetic mistake that was made. It was however the sheer clumsiness, the appalling arbitrariness and the overwhelming subjective nature of the analysis that was most frightening. In my naivety, in my ignorance, I had always thought that economists dealt with the real economy. I considered that these people with their magic formulae, their alchemical spells, could conjure up, if not a view of the future, at least an understanding of the past. But oh! I was woefully wrong. The people who lay the fabric for the agenda of the rich and powerful, don’t do any of that. They decide for arbitrary reasons, to include or exclude countries from their analysis, they don’t bother to check for simple mathematical errors. They then defend themselves against criticism by saying that they were only small errors.
My problem, as a punter, is how the hell can I know what any of their prognostications mean. In fact, how can anyone know? I truly do not know anything of the mathematical formulae required to analyse economies. I know little of the nuances of Keynesian planning, though I understand enough to know that the wisdom of his thinking has been ignored in order to save the oligarchy of the financial elite.
What I do know is this – that the last five years have seen the greatest transfer of public wealth into private hands in the history if Western Society, the indenture of the whole population of the PIIGS countries, the decimation of the middle class, the dismantling of social services and the abolition of democracy in debt burdened nations. The banks have managed to privatise their profits and socialise their losses. Nations have not only lost the ability to decide on their own Government programs, but have had external programs imposed on them.
So what the nub of the problem for the man in the street is that the basis for all these austerity driven policies is not an analysis of tried and trusted methods of overcoming the debt crisis but rather the exact opposite. These programs are not only counter-sense, but they are an exact opposite of the methods that we have learned about dealing with recessions/depressions before. They are an attempt to create growth by shutting down economies. To raise taxes by strangling industry. To reduce social spending by increasing dependency. They fly in the face of the manifest truisms that you cannot create growth without a functioning economy, you can’t have an economy without cash flow, and you cannot have cash flow when you sacrifice individual effort in order to prop up failed financial institutions.
These counter-sense economic policies play straight into the neo-Weberian view of the world that economic collapse has a quasi-moral dimension to it, and that the nations who profited most by the European experiment in the terms of growth and centralisation of wealth are somehow on a higher plane than the peripheral economies that have floundered. Whatever truth there is in the supposition that the peripheal countries screwed up their economies independently of the centre (another manifest fantasy), the cure has nothing to do with the complaint. The cure is designed to tie those peripheral countries into a centralised low-inflation stangnant austerity that has nothing to do with stimulating growth. It has everything to do with economic dependency and indenture.
This whole debate is not about a tweeking of an “Econ 101” freshman project. These data were presented as scientific fact, and a quick revision is not the solution. The basis of the austerity philosophy as applied to Europe is nationalist, pseudo racist, and highly questionable. It relies for intellectual legitimacy on the highly questionable views of the likes of Rogoff and Reinhart. So when you question how such philosophies have contributed to putting twenty seven million people out of work, you have to throw up when you find out that the whole basis of these concepts is faulty. Not only are the analyses subjective, arbitrary and variable, but you also find out that even the basic arithmetic is wrong. Closed prejudiced minds. Sloppy work, and sloppy thinking.
“OH MY GOD, DARLING, I FORGOT TO MULTIPLY BY TWO!!!”
IS IT ACTUALLY POSSIBLE TO BRING DOWN WESTERN CIVILISATION BY A CODING
ERRER, SORRY – ERROR?
Strange as it seems, the answer is probably “Yes”. The recent budget crisis that nearly threw the U.S. off the fiscal cliff and the austerity measures that have ensured no less that 27 million Europeans are on the dole have been hughly influenced by the work of economists Carmen Reinhart and Kenneth Rogoff. It now appears that there was a coding error in their data thereby causing the “Excel Depression” according to Paul Krugman.
Why do we have economists? -> to give astrologers a good name!
Apologies to Paul Krugman, who seems to be one of the only economist in the world talking sense at the moment.
It is clear that fiscal deficits cannot be extended indefinitely. However, such dogmatism that the world will turn on a pin is not helping recovery, but inducing fear, panic and reducing realtime activity, as people save and save, and banks hoard and hoard. Most of us live in a real world, not just an economy, and we need to get beyond management by spreadsheets that are full of unvalidated assumptions, hidden logic, and biased prejudices, not to mention arithmetic errors!
- Spreadsheets, Krugman, and a Question of Logic (financialsurvivalnetwork.com)
“What oft was thought, but ne’er so well expressed”
I must say I never had a lot of time for Michael D Higgins. I did vote for him in the recent Irish Presidential Election but mainly because of the appalling panel of six opponents that he faced, ranging from a one issue Republican (not the American type, for those not in the know, but the born-again IRA type), to an ex-Eurovision singer with a right wing agenda. “Michael D” as he is affectionately known (is there a “Michael C”??) has been hanging around politics with an Arts/Crafts – Left wing agenda for most of his life. He was the safer option. Although he is a well known orator, he had certainly never inspired me. I general found him insipid, and what the Irish would call “aeery faerie” – insubstantial and irrelevant. He went on to replace two fairly hard hitting Presidents, Mary Robinson, and Mary Mc Aleese, both of whom have made substantial contributions to world politics and society, way beyond the narrow confines of the titular position that is the Irish Presidency. Michael D. was generally believed to be a weak substitute.
However, Michael D. has proved me and others very wrong in our opinions and if he were ever to read this blog, he can take it as a public apology for my prior held unsubstantiated opinions. Last week in an address that brought the European Parliament to its feet (an achievement in itself), he set out a vision of Europe that has not been articulated for decades. A vision of a society that is not to be judged through the narrow prism of fiscal rectitude, but of a society that has a broader vision of what it is and what it wants to achieve. A foretaste of this powerful speech is quoted below
A European Union – if it is to be respected as the great project it is and can be – must draw on the intellectual heritage and the intellectual imaginings, and the existing talents and capacity of the peoples of Europe. It is a fully authentic Union if it is characterised by solidarity.
If it is not of this authentic character just now, it must be made so by changes in consciousness and commitment, and through reasserting the idealism, intellectual strength and moral courage that drove the founding fathers of the Union. European Member States are peoples, with history, with current needs, with possibilities to be shared.
If we were, as an alternative, to regard our people as dependent variables to the opinions of rating agencies, agencies unaccountable to any demos, and indeed found to be fallible on occasion, then instead of being citizens we would be reduced to the status of mere consumers; pawns in a speculative chess board of fiscal moves in a game derived from assumptions that are weak, untestable or more frequently undeclared.
If you want more please READ THE WHOLE SPEECH
or better still watch it: – Michael D Higgins addresses the European Parliament
Congratulations Michael D. – your latest fan!
The last couple of weeks have seen a breather from the Cyprus Crisis, but the pressure keeps building. Portugal’s constitutional Court have thrown a spanner in the works of THE AUSTERITOCRATS, by ruling against €1.5bn budgetary measures. Portugal’s finance minister has blocked all capital spending as a result. Portugal’s government may fall, leading to further instability, and the formation of another Coalition. The Irish Trade Unions have given the two fingers to more austerity, paving the way for industrial unrest, public service cutbacks and a division between the state sector demands and the ability of the taxpayer to fund it. The downward social spiral continues.
E.U. Commissioner Oli Rehn has issued a warning about Spain and Slovenia, suggesting they are not meeting their targets in the austerity drive, and their Banks are failing. The Slovenian Government, which failed to privatize the banks, after the fall of communism may well have underestimated the cost to underwrite them, and confidence is ebbing. Although the Slovenian situation is but a dot on the landscape compared to the Irish situation, the mood, statements, reassurances have a familiar tone to them. The €70 Billion deficit in a country of 2 million people is slightly better than the Irish €190 Billion for four million people.Aside – isn’t it wonderful the way the word “Billion” just rolls off your tongue these days, when ten years ago no-one had heard of it, and a million was a lot of money!! Further aside – France’s War Debt to the US after the Second World War was about $2.8 Billion (about €2.15 Billion) – Ireland could wage 88 world wars for the money we owe – at least we could if all our young people hadn’t emigrated already leaving a sorry bunch of old farts to take up the cause!.
Sorry – Back to the main story – The Slovenian economy is well beyond my poor brain, but I do recognize another canary when I see one! Slovenia may be the next canary in the cage. How will the troika deal with the next crisis? Will we find out whether Cyprus was indeed a special case in how Ljubljana fares?
Ireland may receive extra time to repay its loans, according to opinions around Dublin. This is a rare bit of good news for the beleaguered island. It was celebrated like we had just won the Eurovision, with smiling faces and congratulatory handshakes. The fact that the Irish taxpayers still have to carry the full responsibility of the international lending disaster that took place in this country, still seems to be conveniently ignored by the powers that be. A debt that has left every man, woman and child in the country owing €50,000 (a goodly sum for a baby, or an nanogenarian!) to bail out speculators, who must have felt all their Christmases had come at once. A second bit of good news, that was celebrated with fanfare, was the downward projection of the Government deficit projection for 2015, to €2 Billion from €3 Billion. With progress like this we should exit the crisis in the year 2202 A.D.!!
Its not only the laggards that have been admonished this week however, the EU has warned that no less than13 countries in the union, including France, the Netherlands and Belgium need to take urgent action to reform their economies.
I’ll post something more upbeat next – Promise!
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- European Commission warns of ‘excessive imbalances’ in Slovenian economy (irishtimes.com)
- Slovenia Bailout Would Be Spanish-Cypriot Mongrel – Bloomberg (bloomberg.com)
- Speculation mounts over Slovenian bailout (irishtimes.com)
Greed is Good, said Gordon Geeko
Well there seem to be a lot of good people around these days. In fact the ICIJ (the International Concortium of Investigative Journalists) has just come out with a list of the Great (or perhaps the Greed) and the Good. No less than 36,000 of them by some reports. Squirrelling their stash away in Tax Shelters around the World.
What’s wonderful about this is it is beyond race and creed. No country or society seems to be spared. No breeding nor domicile seems to matter. No politics or position matter. We have African Dictators, philanthropic art collectors, a president of a nation, several budget ministers, a top class lawyer who used stuff travellers cheques into envelopes, Irish bankrupts…. And there’s more to come…. This is going to run and run, and anyone who is anybody will be on the list… By contrast you’ll be nobody if you’re not! These people are the true pan-nationalists. They are in their own Club. They have evolved beyond the hubris of the squalid societies they live in and have graduated to a type of ethereal plain that is not subjected to the boredom of taxes, obligation and communities. These people believe in the zen of the moment. They trust in yachts, fine fine wines, silk sheets and servants. They are the Gods in the centre of the karma wheel, ignoring the hungry devils!
It really is an “us and them” world.
Now there is a bit of me that thinks that the average Joe (myself excepted, of course, being made of more moral fibre!!) would be doing just the same if he got the chance to join this elite, so perhaps it is too tempting for any Joe to resist. The problem is not that people use these centres, but more that the centres are available in the first place, and under the protection of such august countries such as Britain and Holland. So why haven’t they been closed down. Well we’re back to who is calling the shots again, aren’t we? If David Cameron does respond to the outcry about the British Virgin Islands and closes the whole place down, then all that money which is probably physically in the City of London, will try and fly off to some more accommodating place such as Singapore, and what will that do for his balance of Trade. Not to mention how many cronies, donors and fellow parliamentarians actually have accounts there …..?
What ever happens, there has been a can of worms opened here and it’s going to be good sport seeing where it gets to!!!!! We’ll have a look at a few of the principles in subsequent posts!!
So many things have happened in Cyprus this week, that it will take many years to get a proper perspective on the entire tragedy, but there are a few things that are already apparent to me
- The savers have been shafted. People who have saved all their lives and built up a nest egg for themselves have seen 60% of their savings (over 100k) robbed out of their accounts.
- Unbelievably the political elite seem to be immune as always and are reported to be well able to look after themselves.
- This money has been lost because the bankers had already spent it. When these people popped that money into the vault for safe keeping, they had no idea that as soon as they left the bank, the manager was heading down to the vault, to take it out and spend it on speculative investments, derivatives, performance bonuses, fast cars, or a yacht for his mistress – but that is exactly what happened, because there was nothing left when they went back for it.
- Whether the money belonged to tax avoiding Russians or not is a moot point, but a handy bit of propaganda to deflect from the fact that Cyprus is only one of many offshore investment set ups in Europe, including Luxembourg, and even the City of London ( not to mention our own IFSC). Only 27% of the accounts were reported to be Russian (though the value may be in excess of that). There can be no doubt that many of the accounts would have been local.
- The EU has broached new ground, by failing to protect the depositors. The Irish economy was devastated by the Troika insistence that all bondholders and depositors should be protected. We were told that we must take on the burden of speculative debt, or the financial system of Europe would implode. In Cyprus depositors were thrown to the wind. The initial proposal to levy all depositors was rejected by the communal horror expressed throughout the EU, and though the comfort of attacking the alleged “Tax Evaders” quelled the disgust, the initial intention remains clear. This is a volte face from the Troika that has ruined Ireland and Cyprus by exactly contrary policies.
- The only thing “special” about Cyprus, is that it is the first. There can be no rowing back from this. When the next country comes looking for support from its European “neighbours”, what happened in Cyprus will be be on the table, officially or not. The northerners will say “we cannot be expected to contribute, unless you do so yourselves like the Cypriots did”. Bank deposits in the peripheral “PIIGS” countries are inherently in the spotlight. The flight of money from the EU is inevitable.
- There is nothing left in the EU solidarity myth, other the the hegemony of the Northern nations. Ordinary Germans or Dutch feel no empathy for the periphery, whom they see as profligate and unable to self-govern (with some justification).
- Cyprus has said it is staying in the Euro, but this is a fallacy. It is already out of the Eurozone. It is like Macedonia, using the Euro as a currency, but not being a part of the Eurozone. Owning a €1000 in Cyprus is not the same as owning it in Germany, France or in Ireland. There are exchange controls. You might not even be able able to access it. It could be confiscated. You cannot use it to buy stuff abroad or invest abroad.
- Cyprus will have enormous difficulty trading anything from ice cream to oil, and attached to the euro, will face huge unemployment and politico-commercial collapse.
- The only people seriously supporting the continued Euro Fiasco are the politicians, bankers and large industrialists. The European economies have been caged in a common currency that has decimated the peripheral countries with the combination of cheap interest, excess money supply and stagflation. Cyprus is the dead canary at the bottom of the cage.