Friday, July 24, 2015

Are China's Problems Responsible For Recent Market Slides?

So, WTI oil has slid below$49 per barrel; gold has gone below $1100, although it jumped today. The US stock markets have been down in recent days for no obvious reasons, and some others are not looking so hot either.  Is there a common thread?  The big Greece crisis is over, although that could yet blow up, although I think most markets already know about that.

There have been lots of rumbling that problems in China might have something to do  with all that. There is no way to know this for sure, especially given China's long record of manipulating data.  Furthermore, serious observers are dismissing all this as a bunch of bad hype, most notably Dean Baker recently, accurately dumping on an incompetent story out of the NYTimes (who  seem to be pretending that they were secretly bought by Rupert Murdoch lately).  The Times had a story about the decline of the Chinese stock market, making a big deal about it.  Dean accurately noted that it is still above where it was in February, so the NYT looks pretty silly making such a big deal about it, especially since the Chinese stock market seems to have stabilized, as have the housing markets in Shanghai and Beijing, even if it is still falling in a lot of lower tier cities.

 I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from, but it did not work.  So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics.  One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported.  He snarkily noted that China had just reported that the most recent  quarterly growth report was at 7%, just what the government had forecast, but...

So, what he noted is that while these aggregate number can say one thing, looking at more micro data can tell very different stories. Here are some numbers, each taken from a different source:

1.  In March, electrical power production (from all sources) was down 2% from a year before.
2.  In May, oil imports were down 11% from a year before.
3.  Truck sales have fallen by nearly a half between last year and now.
4. Capital flight numbers are accelerating, possibly more  dramatically than the quadrupling figure reported by Wargent.

So, maybe these are consistent with an aggregate 7% growth rate, but does not look like it.  Many outside observers are arguing that the Chinese GDP growth rate is more like 4%, with some saying that in the first quarter it hit zero or even lower, although picking up more recently.

A final point regards the stock market bubble story.  While Dean Baker sneered at the story from the NYTimes, an aspect not reported by them or him, but in Wargent reports and some other sources says that the methods used by the Chinese government in its efforts to halt the stock market slide (so far successful) were very extreme, including simply forbidding many stocks from being sold, and also forcibly confining stock dealers in rooms until they engaged in purchasing some stocks, with portions of  the market still shut down with no transactions allowed. So, the stock market is not at all really stabilized.  We are seeing the ugly side of the old Chinese system, trying to keep a lot of problems under control that they have not had to deal with.

Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether  or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out.  But, I think there is reason to be concerned.

 Barkley Rosser

Wednesday, July 22, 2015

Sandwichman's Lump-of-Labor Odyssey

The first mention of the lump-of-labor fallacy I ever encountered was in a 1997 column by Jock Finlayson, vice president for policy and analysis of the B.C. Business Council. It was a Business in Vancouver debate with Ken Georgetti, president of the B.C. Federation of Labour, on the merits of restricting overtime to combat unemployment.

At the time, I had been active in advocacy for shorter working time for a little over two years. An abiding interest in the idea had been stoked in 1995 when I wrote a research proposal to do a narrative policy analysis of the employment prospects of work time reduction. Funding for the project never materialized in the wake of a comprehensive provincial government spending freeze announced three weeks after the proposal submission deadline. Meanwhile, however, I had established a web site, the Timework Web, to compile research and commentary on shorter working time.

A little past the midway point in his column, Finlayson wrote, "Work-sharing rests on the belief that the economy can generate only a fixed amount of work. History provides little support for this gloomy view, which economists have labelled the lump-of-labour fallacy." The passage caught my attention because of its distinctive "ungrammaticality," to use Michael Riffaterre's clumsy term.

Riffaterre used that term in a generic sense to refer to "any wording unacceptable in context" rather than exclusively to overt violations of the rules of grammar.
These clumsy wordings, in Riffaterre's analysis, point to the text's intertextuality, "The text refers not to objects outside of itself, but to an intertext. The words of the text signify not by referring to things, but by presupposing other texts."

For narrative policy analysis, such peculiarities of wording are not mistakes to be indulged but "jackpots" for decoding a text. The challenge then becomes one of retrieving the corpus of texts – the "intertext" – to which the peculiar passage refers. The archival work to do so would have been inconceivable before the Internet and wide availability of full-text searching of databases of journal articles, pamphlets  and treatises.

Finlayson probably learned about the lump-of-labour fallacy from Paul Samuelson's ubiquitous introductory economics textbook. But Samuelson didn't know when or where the fallacy claim originated, explaining that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France." (correspondence with the author).

Using JSTOR, I was eventually able to trace the "lump of labour" phrase to an 1891 article on piece work by David Frederick Schloss. By then, January 1999, I was already aware that the fallacy claim -- and rebuttals of it -- had long preceded that specific label. It took me 15 more years of occasional forays back into the archives (and keeping my eyes peeled) before I finally got to what I believe is the rock bottom of the story.

Tuesday, July 21, 2015

Sherk 'n Burke?

at the Heritage Foundation:
Automation and Technology Increase Living Standards
by James Sherk and Lindsey Burke

Many Americans blah, blah, blah... 
Lump of Labor Fallacy 
Fears of mass technological unemployment are predicated on a “lump of labor” model of the economy—the belief the economy needs a roughly fixed amount of work performed.In this economic model, machines automating work formerly done by people reduce the total amount of work remaining for humans, reducing total employment. Keynes forecast an impending crisis of unwanted leisure. He suggested future societies would establish three-hour workdays to give everyone enough work to avoid boredom.
Almost all economists reject this model today. Economists have found that an almost unlimited amount of potential work exists in the economy because people’s material desires continue to expand. Virtually all Americans today enjoy material living standards vastly better than the wealthy of 1900. Nonetheless, most Americans today would purchase additional goods and services if they received a raise or bonus.

Sandwichman's lump-of-labor odyssey

Is Jeb! Related to Angela Merkel?

Jeb! apparently thinks the U.S. needs spending cuts in order to get a balanced Federal budget, which sort of sounds like what Merkel has been insisting in terms of fiscal policy for the “Club Med” nations. I was wondering where this hate filled term came from and in my search I found this.
German media reported earlier this week that Chancellor Angela Merkel told CDU party supporters that workers in southern European countries must work more.
The Jeb! solution for those with modest incomes in the U.S. seems to be that they should work more. Of course, the Greeks and Americans do tend to work a lot when they have jobs. Of course the fiscal austerity that Merkel and Jeb! advocate makes finding a job that much harder.

Accord Didn't Open Door To Nukes

That is the heading the Washington Post put on the letter by me that appears today, July 21, 2015, on their editorial page.  What follows is the letter itself verbatim.

"The July 17 letter from Bandar bin Sultan bin Abdulaziz al Saud, "The Iran deal hurts U.S. allies," implied that it was the Clinton administration's 1994 agreement with North Korea that led to North Korea obtaining nuclear weapons.  That agreement caused it to adhere to the Nuclear Non-Proliferation Treaty, shutting down its plutonium-producing reactor and halting it nuclear weapons program.  Those actions were undone, with North Korea obtaining nuclear weapons, after March 2001, when the George W. Bush administration changed course and increased sanctions in a failed effort to bring about the end of the North Korean regime."

J. Barkley Rosser, Jr. Harrisonburg, Va.

Monday, July 20, 2015

The Euro, From Cash to Kesh

Ruling out any writeoff of Greece’s debts, Angela Merkel is quoted today as saying “A classic haircut of 30, 40 percent of debt cannot happen in a currency union....”  This echoes what Wolfgang Schäuble said last week: “....everyone knows that a debt haircut is incompatible with membership in the monetary union.”

OK, let’s take a moment with this.  The United States is a currency union: fifty states with all their urban and regional subdivisions share a common currency, the US dollar.  Are public debts of these subjurisdictions ever written down?  Regularly.  Orange County, anyone?  Detroit?  What law of nature or human affairs is supposed to make this impossible?

As a general proposition, the Merkel-Schäuble doctrine is obviously, indefensibly wrong.  You’d think someone would call them on it.

So maybe the no-haircut rule is wrong in general but does apply to the eurozone.  You could argue that writing down Greek debt reduces Germany’s assets as it decreases Greece’s liabilities and therefore constitutes the sort of transfer that the zone was carefully crafted to avoid.  The problem is that this overlooks the fact that Greek debt is already worth less because the markets have correctly divined that it cannot be fully repaid.  This is clear if you think of the mechanism by which a writedown would normally be executed: the existing stock of debt (or the portion of it drawn on a particular creditor) would be exchanged for a new bundle of instruments with lower face value but approximately the same market value.  Such a transaction acknowledges and ratifies a loss in creditor value that has already occurred.  Now, if you want to interpret the EU rules as forbidding the market to devalue the assets of creditors and the liabilities of borrowers because that constitutes a transfer—well, good luck.

So on closer analysis the German position is as absurd as it looks on the surface.  It is a weak play for intellectual legitimacy.  What it’s really about, of course, is the fact that Greek maturities are spread out over the coming decades, and that restructuring their terms will postpone the reality of default to future politicians.  A writedown is immediate and pins the loss on the folks currently in control.  And you can’t have that in a currency union, can you?

Friday, July 17, 2015

Are Workers People? (Views Differ)

"...our understanding of wage determination has been transformed by an intellectual revolution... workers are people" -- Paul Krugman
Memo to Karl Marx, suggested revision -- highlighted in yellow -- to the climax of your 1865 address to the First International (courtesy of  Paul Krugman):
"Instead of the conservative motto: 'A fair day's wage for a fair day's work!' they ought to inscribe on their banner the intellectual revolutionary watchword: 'Abolition of the wages system Workers are people!'"
Where to begin?

Even prior to Card and Krueger's pathbreaking research on the minimum wage there were widespread intimations that workers might indeed be people. Reputedly, the Fair Labor Standards Act of 1938 -- which established a federal minimum wage in the U.S. -- was enacted into law more than a half century before the intellectual revolution that transformed our understanding of wage determination. How did that happen? It's like they must have had a time machine or something.

But are workers actually people? A balanced analysis would present both sides of the question objectively.

"That's you problem right there, ma'am. Your denominator is all
wore out and that's puttin' too much strain on your numerator."

Heritage Economist on Greece and the US

Paul Krugman has some fun rightfully mocking this:
If U.S. policy makers and the public take away only one key lesson from what’s happening in Europe right now, it should be to put the budget on a path to balance during good times such as these.
Paul may a few good points but permit me to go further starting with this opening line. As Paul and others have noted, this call for fiscal austerity risks another recession which is the real lesson we should be drawing from the Greek tragedy. The toxic mix of fixed exchange rates and fiscal austerity has plunged Greece into a massive recession which is the main reason its debt/GDP ratio keeps rising. But the folks at the Heritage Foundation would not ask us to adopt some sort of gold bug philosophy – would they?
the United States also creates its own money, enabling it to devalue its currency and debt to avoid defaulting on payments for a lack of cash. This power, when abused, can lead to steep inflation setting off very bad economic consequences that can harm those relying on their savings to get by the most.
While this acknowledges the beneficial role of devaluation, it immediately goes into inflationista mode suggesting the folks at Heritage are indeed still gold bugs. But what bothers me most is this reliance on some this IMF report:
lessons from nine country case studies on how changes in fiscal policy coupled with structural economic reforms, such as labor-market liberalization, drive increases in economic growth.
Read the IMF report for yourself but I’m not convinced that this report makes a strong case for supply-side economics. Yet the folks at Heritage argue:
Growing spending on public benefits threatens to overwhelm the U.S. economy in the long term. At the federal level, Social Security, Medicare, Medicaid and other health programs consume more than half of the budget, and spending on these programs is growing steeply. After accounting for other benefits, transfer payments make up about 70 percent of all spending in the United States today. Implementing important reforms to unaffordable and outdated benefit programs has proved to be a difficult feat politically. However, waiting too long on reforms diminishes the ability to phase in major changes gradually, in a way that will protect those who rely on benefits the most and leave others time to adjust to new fiscal realities. Waiting for a major crisis to force reforms, as Greece has done, brings unnecessarily painful austerity.
Let’s be clear – reforms and austerity are two very different things. And yet the real agenda here is to reduce Federal spending on health care and Social Security, which will likely be neither reform nor austerity if these spending reductions are nothing more than means to pay for more tax cuts for the rich.

Thursday, July 16, 2015

Is Iran Really Like North Korea?

So claim the Saudis in announcing their joining Israel in opposing the new Iran nuclear deal negotiated by the P5+1 with Iran. Why do  the Saudis make such a claim?  They have argued that Clinton engaged in a soft policy that led to North Korea obtaining nuclear weapons.  This agreement with Iran is supposedly like what Clinton did in the 90s with North Korea, so accepting the deal will lead to Iran obtaining nuclear weapons also, presumably unless somebody goes and bombs, bombs, bombs Iran, as John McCain used to put it.  Is there any basis for this argument?


What led to North Korea getting nuclear weapons has rarely been discussed in the US media, and is not at all now.  I am not surprised that the Saudis are confused about this, as I suspect the vast majority of Americans have no idea with what really happened.  It has barely been reported.  As it is, this was the second worst foreign policy disaster of the George W. Bush administration, with only the invasion of Iraq.  Unsurprisingly, those pushing the invasion of Iraq (and now pushing bombing Iran) were those who were behind this Korean fiasco.

After North Korea's founder, Kim Il Sung, died in 1994, relations between the two Koreas relaxed, especially following a visit to Pyongyang by Jimmy Carter.  South Korean President Kim Dae Jung began his "Sunshine Policy," indeed supported by the Clinton administration.  One of the things to come out of this was North Korea joining the NNPT (Nuclear Non-Proliferation Treaty) and shutting down its plutonium producing facility, effectively shutting down its developing nuclear weapons program.  Kim Dae Jung would receive a Nobel Peace Prize in 2000 for his policy.  I note he was a genuine reformer who had been a dissident during the Park Chung Hee dictatorship (1960-1979) and was tortured by that regime so that he always had a major limp until his death in 2009.  He was actually saved from execution during this period by the US CIA.

When George W. Bush became US president in January, 2001, his Secretary of State, Colin Powell, thought that continuing the US policy supporting the ongoing negotiations was the proper thing to do and communicated this to President Kim.  Kim came to Washington in early March after that to meet with Bush with this expectation in his mind. But upon arriving, he learned that Cheney and Rumsfeld had gotten to Bush to undo Powell's approach.  They believed that North Korea was on the verge of collapse (they got such views from Nicholas Eberstadt, among others), so that tightening sanctions would push them over the edge and regime change would result.  Kim Dae Jung returned furious to Seoul, and US popularity in South Korea tumbled sharply.  The Sunshine Policy came to an end.

Needless to say, what followed in North Korea was not a collapse, but a withdrawal from the NNPT, a restarting of the plutonium reactor, and the production and acquisition and testing of nuclear weapons.  It was not Clinton's policy that led to this outcome, it was Bush's, following an approach that the Saudis seem to think should be applied to Iran.  Really, I do not think they know what they are advocating there, this is so incredibly stupid.  The loss of their longtime foreign minister, Saud al Faisal recently, is really showing.

Barkley Rosser

The Papandreouization Of Alexis Tsipras

I met George Papandreou a couple of times at conferences and had brief conversations with him. He always seemed like a reasonable and serious guy. This was all before he became Greece's Prime Minister in October, 2009, but after he became leader of the Greek PASOK party in 2004, the old socialist party of Greece, which his father and grandfather had led, with both of them serving as PMs also. George's father, Andreas, was an economist and was on the Berkeley faculty for some period of time and married an American woman, George's mother. George served as a minister of education and some other positions when his father was PM during the 1980s and 1990s. While PASOK is dead, and George's effort to start a new party and run in the most recent election totally failed, he continues to serve as president of the Socialist International, a position he has held since 2006.

The most dramatic thing that he did came shortly after he became PM in late 2009: he revealed that Greece had been lying about its national income accounts and particularly its budget deficits. These had been claimed by the previous administration to be around 6% of GDP, but were actually nearly 13% of GDP. George fessed up to this, which was the trigger for what would be called the "eurocrisis," and which went on for several years, basically until the ECB announced that they would "do what is necessary" to back up sovereign debt in the eurozone, bringing down interest rates in nearly all nations in the zone, although not in Greece.

 This admission and crisis led to the original bailout of the Greek financial system, with all that austerity imposed for financial support. That deal was unsustainable, and their would be a readjustment in 2012, which was also unsustainable, with all the more recent stuff arising due to that. So, socially and politically progressive Papandreou accepted imposition of an austerity program that tanked the Greek economy. His popularity steadily declined as it became clear how disastrous the agreement was, with him finally stepping down in late 2011 in favor of a unity government. As it is, while he remains highly respected abroad, and I have very high personal respect for him, his fall into unpopularity in Greece seems to have been total and probably permanent.

 So, it looks like Alexis Tsipras seems to have followed his path. After lots of rhetoric and admirable efforts to get a better deal for Greece, he has in the end totally surrendered and caved to the demands of German Finance Minister Wolfgang Schauble and his allies in such countries as Finland and Slovakia. While there are funds being provided, if anything it looks like the austerity being imposed may well be worse than what went down before. I am not going to repeat how unfair and unreasoanble all this, other than to note the IMF declaring that this agreement is also unsustainable without debt restructuring, totally rejected by Schauble and his allies. To get this awful agreement through the Greek parliament, Tsipras had to rely on his opponents, with many Syriza members not supporting it, and major demonstrations going on outside, even though apparently a majority of Greeks oppose leaving the euro. I sympathize with Tsipras's position, but, I fear, he has just become the next George Papandreou. As it is, Yanis Varoufakis resigned after the referendum passed that was supposed to get the troika to back off, but failed to do so. We shall see how long it will be before Tsipras follows Papandreou out of office.

Barkley Rosser

More or Less? Fourth Grade Arithmetic for Economists

A highly-rated comment on Barro's column at Upshot
At Upshot, Josh Barro asks "Should Americans Work More?" At Policyshop, Matt Bruenig answers Absolutely Not.

Pinch me. Are we actually having this conversation? Should morbidly obese Americans eat more doughnuts? I am fond of quoting Thomas Pynchon's epic line from Gravity's Rainbow, "If they can get you asking the wrong questions, they don't have to worry about answers."

Barro's column pursues the "balanced, objective" framing device of looking at "both sides" of a wrong question. Bruenig points out the flaw in Barro's central theme of regulatory and tax "distortions" that discourage even longer hours of work. Barro's framing ignores much greater and more fundamental distortions that impose longer hours. "If we are going to have a work debate," Bruenig concludes, "it should proceed by asking ourselves how much time we want to spend toiling our scarce lives away, not muttering incoherently about what distorts what."

Bruenig presents two charts that compare hours worked in the U.S. to other countries. The first chart plots the ratio of annual hours to labor productivity. The second chart compares each country's hours/productivity ratio to an aggregate norm. The U.S. is a long-hours outlier in both.

In plain language, what these charts reveal is the inordinate emphasis in the U.S. on GDP. In fourth-grade arithmetic terms, the index called "productivity" is a fraction. It has both a numerator and a denominator. The numerator is GDP. The denominator is hours of work. The result of this operation of division is called the quotient. Productivity is a quotient. A quotient is increased by either increasing the numerator or decreasing the denominator (or both).

There is an extensive literature on the systematic errors made by children learning rational number concepts. Those errors result from attempts to apply rules that have been previously learned about whole numbers  to new situations where those rules are not relevant. Mistaking a quotient (productivity) for a numerator (output) would be an example of this kind of systematic error. Would it be asking too much for economists to set aside their indulgence in arcane mathiness and attend instead to the pervasive ignorance of fourth-grade rational number concepts that underlies the single-minded obsession with "economic growth"?

Wednesday, July 15, 2015

Why it is Wrong to Focus on Growth Alone

Matt Bruenig has a most excellent post, Why Jeb Bush is Wrong to Focus on Growth Alone at Policyshop. It isn't only Jeb Bush who focuses on growth "alone" (or above everything else). It's the standard framing, everything else is reduced to an afterthought.
In an ideal world, discussions of ideal work levels would be detached from discussions of unemployment, growth, and distribution. But in our narrow political frame, all of these things are mushed together, and tend towards the view that we must have more work hours to solve all the other stuff. This, of course, isn't true. You can reduce overall work hours (through longer vacations and more paid leave) while reducing unemployment, increasing GDP/hour, and even boosting the incomes of the poor and working classes (despite reducing work hours) by increasing transfer incomes. Yet, because of market income fetishism and simplistic discussions of GDP growth, we don't seem to have the political imagination to even consider such a program.
Two graphs summarize Bruenig's argument. See the difference?

The Greek Transportation Giveaway “Scandal”, or Why Germans Are Furious at Greeks

The public mood in Germany is one of outrage at Greece—their belief that Greeks think they have a permanent right to other people’s money, the dishonesty of the Greeks, the way they will promise anything in order to continue the same corrupt policies, their inability to follow the rules.  Schäuble speaks for most of his countrymen when he says that Greece has no business being in the euro zone, but if it has to stay it must be kept on the tightest possible leash and given no relief from its obligation to pay as much as possible.  Non-Germans may wonder where these attitudes come from.  Is there some deep problem with German culture, a Teutonic meanness kept hidden since 1945 but now back in full view?

No.  Most Germans are reasonable and are motivated by goodwill toward others, at least in the way that most people everywhere are.  But they live in an information bubble which spawns a further echo chamber of public commentary, so the mental world they live in is simply different from the one outside their borders.  (I don’t know first-hand, but there may be a similar bubble enveloping the Netherlands, Finland and a few other countries.)  Inside this bubble there is a steady stream of “news” whose common denominator is that slippery, corrupt Greeks are scheming to take advantage of Germans’ hard-earned wealth.  This is something that every German now “knows”, part of the conventional wisdom that forms the bedrock for political analysis.

To really understand how this works you would have to be there.  It’s not a matter of one or two biased news reports, but a steady stream of news, every day, in little snippets and major headlines, that reinforce the underlying message.  Here I’ll present a small example that, multiplied by a hundred, gives a sense of what’s going on.

So have you heard the latest?  In order to prop up his political support Tsipras has made public transportation free in Athens!  Can you believe it?  Here’s a country that’s bankrupt, that’s sucking in our money to stay afloat, that should be spending every spare penny on the poverty of its own citizens, and instead it’s the same old clientelism: hand out favors, buy a few votes.  That’s how he bought those “no” votes in the referendum.  We have to pay for transportation in Frankfurt and Hamburg!  Why should they demand our money so that their people can have something we don’t have?  Hasn’t it occurred to them that transportation and everything else has to be paid for, that people need to work and produce so that society can afford it?  But I guess that’s how it is with those Greeks.

Now tell me: have you heard anything at all about free transportation in Greece?  No?  It was a big story in Germany, written up in all the major papers and discussed on radio and TV.  Here, for instance, is Handelsblatt, the main business newspaper:
The state coffers are empty in Athens, hundreds of thousands of pensioners are waiting for their pensions, but Premier Alexis Tsipras wants to keep people happy before the referendum on Sunday.  After Tsipras on Tuesday introduced a zero tariff for public transport operators in Athens, on Wednesday the Greeks got a 50 percent discount on all tickets of the national railway company OTE. The discount is allegedly designed to facilitate people taking part in the referendum on Sunday.
(Handelsblatt, July 1)
In most of the world this was a non-story, unreported.  One brief notice appeared in Straits Times, the respected English-language newspaper published in Singapore:
The Greek government has declared public transport free in Athens this week to ease difficulties created by the closure of the banks and a rush on petrol stations.
Greece's transportation minister, Christos Spirtzis, has announced that buses, trams, trolley-buses, and the Athens metro will not require fares until next week.
The offer is set to last until July 7, when in principle the banks will re-open.
(Straits Times, July 1)
Outside of Germany, Greece was scrambling to keep the economy going in the teeth of an intense liquidity crisis set off when the ECB froze its support of the country’s banking system.  Germans however saw another shameful case of clientelism and corruption at the expense of hardworking taxpayers in the rest of Europe.  Now imagine this being repeated every day for months and you get some idea of the different mental world Germans inhabit.

(Incidentally, if I thought Tsipras was buying votes by giving Greeks benefits the country can’t afford, billing it to Europe, and then demanding that it all be wiped out in a future default, I’d be pretty angry too.)

If I’m sympathetic to the average German, it’s because, as an American, I’ve lived through the same thing.  Replace “Greece” with “Saddam”, Iran, “the terrorists”, and so on, and you have plenty of information bubbles of our own.  Remember the runup to the war in Iraq?  Americans knew lots of things about Iraq’s connections to Al-Qaeda and its imminent threat to US security that made an invasion seem like a plausible solution.  The fact that this looked like a collective mass hallucination from abroad had no effect on us.  And Americans, despite their widespread support for military actions that can only be described as criminal, are not, for the most part, bad people.  They want good things for themselves and others, and, given the information world they inhabited, their political views were not out of line.

Of course, information bubbles and the attitudes they lead to present a big problem.  Wars of aggression are not OK, and neither are debtors prisons that lock up whole countries.  To build a better world we will need to understand where the bubbles come from and how they can be perforated.  Demonizing entire populations, however, is the wrong way to go.

Tuesday, July 14, 2015

Slush-Fund Schäuble

“He [Schäuble] admitted that he had met the arms dealer and lobbyist at the centre of the scandal, Karlheinz Schreiber, and accepted an undeclared DM100,000 (£36,300) cash donation from him.”
This inconspicuous line appeared in a BBC story Wolfgang Schaeuble: Germany's man with a Grexit plan. I hadn’t heard about this background detail before. Why not?

In November 2013, Karlheinz Schreiber was sentenced by a German court to six and a half years for tax evasion. He was also involved in "inappropriate" transactions with former Canadian prime minister, Brian Mulroney. "Mulroney admitted taking $225,000 in cash from Schreiber, but said he broke no laws or ethical guidelines."

That's a lot of cash. "Broke no laws or ethical guidelines" doesn't pass the laugh test.

The nature of Schäuble's shady dealings with Schreiber have apparently never been fully disclosed, apart from his admission that he accepted the cash, which resulted in his resignation as leader of the CDU and Angela Merkel's elevation to that post.

German party leader took cash from arms dealer, Guardian, January 11, 2000
In a new twist to the illicit funding scandal that has embroiled Germany's Christian Democrats, their leader, Wolfgang Schäuble, last night admitted he too had accepted cash from the arms dealer Karlheinz Schreiber for party funds. 
The former chancellor Helmut Kohl is already under criminal investigation after admitting last year that he funnelled cash to the Christian Democrats (CDU) through a web of secret bank accounts. He has refused to name the donors, in contravention of German law.
According to a report to be published today in the newspaper Stuttgarter Zeitung, Mr Schäuble, who has always enjoyed a reputation for integrity, has been put "under massive pressure" by Mr Kohl to own up to his role in the irregular financing. 
In an interview with the television channel ARD, Mr Schäuble said he took DM100,000 (£32,114) from the arms dealer which he had passed on to the party. He said that, unlike the money which Mr Kohl funnelled to the CDU, the cash he took did figure in the party's accounts but was reported under "miscellaneous income".
That would suggest that the handling of the donation contravened a law which calls for contributors who give more than DM20,000 to any political party to be identified. 
Mr Schäuble, who became party chairman after Mr Kohl's crushing defeat in the 1998 election, was already under pressure to explain another mysterious - and apparently illicit - movement of funds.
Revised accounts released by the CDU at the end of last year showed that in January 1997, more than DM1m was sent by the parliamentary party to party headquarters in apparent defiance of a ban on such transfers. Mr Schäuble was leader of the parliamentary party at the time.
Germany's Schreiber Affair: The Scandal that Helped Merkel Become Chancellor, Speigel Online International, August 07, 2009:
Unexpected Questions In Parliament Led To Lies  
Meanwhile Kohl’s likely successor in the CDU, Wolfgang Schäuble, was becoming ever more enmeshed in the Schreiber scandal. At the time, Schäuble was one of the most popular politicians in the country and in 1997 Kohl had handpicked Schäuble to succeed him at the head of the CDU — but because the CDU lost the election in 1998, Schäuble became the party’s chairman.
When questioned in parliament in 1999 about whether he had accepted a donation during a meeting with Schreiber, Schäuble disputed the question. But in a radio interview in January, he admitted he had met Schreiber at least once more. That created suspicion that a second donation had been made. Whatever the case, indignation within the ranks of the CDU and its Bavarian sister party, the Christian Social Union (CSU) toward Schäuble grew so much that he was forced to resign. 
So how exactly did Merkel profit from the Schreiber incident? The former party secretary became aware that, in the face of an unexpected question in parliament, Schäuble had lied about taking cash from Schreiber. Merkel realized at the time that this secret would eventually come out and would inevitably lead to Schäuble’s downfall. She also knew that, if she wasn’t careful, she could go down with him. After all, it was only logical that the general secretary of a party would have the confidence of the head of that party. 
And so she wrote about it — in what was widely described as a “Dear John” letter addressed to Kohl and published in the Frankfurter Allgemeine Zeitung newspaper on Dec. 22, 1999. In the letter she was very critical of Kohl, saying that the new generation of politicians in the CDU needed to distance themselves from him, in the same way that teenagers must distance themselves from their parents if they are to become adults. Even though Merkel had only told Schäuble about plans to publish the open letter the night before, Kohl was convinced that the missive had been published with Schäuble’s foreknowledge and approval. 
Suddenly Kohl seemed to discover his old political boisterousness, attacking Schäuble ever more vigorously. Perhaps he wanted to secure a virtuous place in the national history as the “father of German unity” — he had presided over the re-unification of East and West Germany — rather than the infamous politician with the dirty donations. A war of words, via various interviews, ensued, the likes of which had not been seen before. The fight between the two former friends and allies escalated to the point that Kohl abdicated his seat as honorary chairman of the CDU and Schäuble resigned his position with the words: “The CDU finds itself in the most serious crisis in its history.”
The scandal that rocked the government of Helmut KohlDeutsche Welle, January 18, 2010
Unanswered questions 
Despite the two-and-a-half year probe into the CDU's murky financial dealings, the chairman of the special parliamentary investigation committee said during the time that key questions in the affair still remained unanswered. 
"A lot of untruths have been told in this committee, to put it mildly. I can also be more brutal and say: 'a lot of lies have been told,'" said Volker Neumann, a member of the center-left Social Democratic Party. 
"For years, the CDU hasn't just breached party funding laws but it was also guilty of political corruption on several accounts under then Chancellor Kohl," Wolfgang Stroebele of the Green Party said. 
The CDU denied allegations of corruption but the affair engulfed other leading lights of the party too. In early January, 2000, CDU chief Wolfgang Schaeuble, Kohl's handpicked successor, admitted he had received a payment of 100,000 deutschmarks from Schreiber.
Money being exchanged 
But Schaeuble, Germany's current finance minister, insisted he had forwarded the money to the CDU's then treasurer, Brigitte Baumeister, and had nothing to do with the illegal booking of the money. Baumeister rejected the accusation, saying she had handed over the money to Schaeuble in an envelope.
The allegations were never proved in court but the affair cost Schaueble his job. He was replaced by Angela Merkel. 
A political scandal 
In many cases, the courts were unable to prove that CDU heavyweights were indeed involved in the affair. Proceedings against Helmut Kohl in a court in Bonn were stopped. 
And authorities in Augsburg suffered a setback when Joerg Hillinger, the public prosecutor in an investigation of the CDU party in the state of Saxony was killed in a car accident in April 1999. 
His death came shortly after investigations uncovered dubious dealings in the state party. Till today, it remains unclear whether his death was an accident or murder. 
The CDU slush fund scandal has all the makings of a political affair. Till today, the names of the donors remain unknown and it remains unclear how many millions the party actually received in secret donations. 
Investigators had hoped the arrest of former Deputy Defense Minister Holger Pfahls in July 2004 - after five years on the run - would shed more light on the affair. But that didn't happen.

Monday, July 13, 2015

Rates of Growth and the Four-Day Week

Henry Hazlitt, Newsweek, August 25, 1958
Is it true, as we are now so frequently told, that Communist Russia’s economic "rate of growth" is faster than ours, or that we cannot survive unless we increase our own "rate of growth"? There are at least five main reasons why rate-of-growth comparisons are untrustworthy.
Let’s stop making a fetish of national income statistics and percentage rates of growth.
Daniel Seligman, Fortune, July 1954
A calculation made by Fortune for the years since 1929 suggests that in the past quarter-century U. S. workers have been taking about 60 per cent of the productivity pie in the form of income, about 40 per cent as leisure. Assuming that the four-day week for non-agricultural employees will be attained when the total work week is in the vicinity of 32 hours, that productivity continues to increase at an average of 2 or 3 per cent a year, and that something on the order of the recent 60-40 ratio for income and leisure continues in effect, the 32-hour week should be spread throughout the whole non-farm economy in about 25 years.
Meanwhile, in the income-leisure choice for the years ahead, there will be one strong pressure for leisure: The workers who have been energetically pushing their way into the middle-income class have, naturally, become increasingly preoccupied with federal tax demands. "If we get more dough," said one AFL man recently, "the government can take back part of it. But they haven’t yet figured out a way to tax your day off."
In retrospect, the inability of the government to tax workers' days off may have been one strong pressure against leisure.