Austerity vs. Stimulus: Ignoring the Inherent Contradictions of "Growth"

Jennifer Hinton at the Guardian:

The issue of austerity versus stimulus is often framed as the entire debate – if you don’t support one, you must support the other, because there are no alternatives. This is the same binary debate that has been going on for more than 100 years between the state versus the market. Yet, these dichotomies distract people from thinking about what’s really important – the goal of these policies, which is to grow the economy. 

No analysis I’ve read thus far has questioned the damaging role that the endless quest for economic growth plays. Neither austerity nor government stimulus will ever be able to address the debt crises and recessions of the twenty-first century because what we’re dealing with here is an inherent contradiction of capitalism.

Has The Syriza Government Been Fiscally Irresponsible?

According to commentator after commentator, especially on lots of blogs, that is certainlhy the case. Those nasty, lazy, corrupt, good-for-nothing Greeks just want to have it all as shown in the horrible irrational and irresponsible No vote on their referendum, having been doing nothing but running primary budget deficits and demanding bailouts from their troika creditors, who have been offering them highly reasonable deals that they should just shut up and accept or else have their government step down and be replaced by an appropriatedly kowtowing responsible one.  Among those pushing the line that they have been running nothing but primary budget deficits has been Tyler Cowen at Marginal Revolution, most recently posting a link to a Ricardo Hausmann Faecbook post that states "It has been running primary deficits..." with no modification, with Tyler, having made such a claim earlier and being told that he was misrepresenting things thinking that this post would somehow vindicate his inaccurate position.

So, of course there is a lot of confusion and we cannot know for sure what is going on, but in fact official data is in on the budgetary situation of Greece during the first quarter of 2015 during which the Syriza government was in power, supposedly irresponsibly running massive primary deficits and otherwise showing why they should be removed from power, the awful commies.  But, whoooops! if one looks at the official data, it turns out that not only did the government run a primary surplus during the first quarter, but that this surplus increased from about 770 million euros in the last quarter of 2014 to about 1.19 billion euros in the first quarter of 2015, a more than 400 million euro increase in that supposedly nonexistent primary surplus, as reported by phantis just yesterday, (actually April 2) although there have been earlier reports coming in with roughly similar numbers, with little of this getting much media or other attention anywhere.

Now it must be admitted that this outcome includes some one-off elements unlikely to continue.  There is also the unfortunate fact that the Greek economy has fallen back into a recession, which is likely to worsen in the near future.  So, tax revenuse are likely to fall, and it may be as Tyler Cowen stated in an earlier post that "the primary surplus is gone."  But at least one report I found made a projection for the second quarter (actual numbers not in yet for that quarter just ended) that showed a primary surplus still holding in the second quarter and even into June, although much reduced from the first quarter.  I would note that one item people have pointed to has been an incentives program the government put in place to encourage those in arrears on paying past taxes to come in out of the cold, a one-shot deal. Best estimate I saw of that amount for first quarter was 147 million euros, helplful, but less than half of the increase in the primary deficit from the previous quarter, with reduced spending responsible for more of it, despite all the caterwauling to the contrary by so many very self-righteouss outside critics.  As it is, while those making those tax arrears payments not returning to do so again, the incentives program remains in place, so there may still be more arreared taxpayers coming in from the cold in the future.

Greece may well have gone into primary budget deficit territory by now (or shortly will do so), but those claiming that it has been just running primary deficits all along are misinformed and misinforming when they repeat this falsehood.  They should all go check the actual data before repeating this drivel further agains.

Barkley Rosser

Over to you, Angela.

Sandwichdog

Next Up in Greece: Regime Change

It was clear all along that Greece had no defense against the troika’s doomsday weapon, a credit cutoff by the ECB.  As “negotiations” dragged on, the dispenser of euros publicly warned of a Greek banking failure, actually provoking the sort of run that central banks normally do all they can to prevent.  Finally, in retribution for Tsipras’ final act of defiance, calling a referendum scheduled several days after the termination of the loan program, the ECB fired away in force, freezing support and essentially telling Greek depositors, pull your money out now or never see it again.  With capital controls in place, banks shuttered, and the government unable to find euros to fulfill its core obligations, Greece is prostrate.

That’s Act I, which has culminated with Tsipras folding and giving in to the same demands he rejected five months earlier.

Now begins Act II.  The creditors will offer Greece a further deal, with more loans (and indebtedness) and more austerity, but enough support to allow Greece to have a financial system again.  This offer will not be made to Syriza, however.  It will be presented on the condition that Tsipras resign, and that a new government, led by New Democracy, the center-right party that Syriza replaced, take over.  This appears to be the thinking behind the recent statements by Merkel and Dijsselbloem that no further discussions can be held until after Sunday’s referendum: the expectation is that “Yes” will win big, and that this will lead not only to a new government but athe collapse of Syriza as a coherent political entity.  That’s Plan A. If a Plan B is required, the obvious strategy for the creditors is to exact even more suffering on the Greeks—for instance, keeping the euro spigot closed even as food imports dry up and starvation sets in.  But that increases the likelihood of a violent regime change, presumably led by the military.  My assumption is that “liberal, reasonable” Europe would prefer to see Syriza deposed in a civilized manner, without tanks and prisons, but one way or another the political goal has to be fulfilled.

From where I sit, it was obvious from the outset that a Syriza government in Greece was viewed as unacceptable by the rest of the EU.  (I’m referring of course to member governments.)  It was always understood that resolving the dispute meant removing Syriza as a disputant.  It is likely that future releases of diplomatic communications will verify this.  In the meantime, I wonder whether this was recognized in Athens and, if so, what their strategy was to prevent it.

#MerkBeth

The Cover-up is Alway Worse Than the Crime

The crime:

Nobel laureate [Stiglitz] tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

The cover-up:

"Greece is in a difficult situation, but purely because of the behaviour of the Greek government ... Seeking the blame outside Greece might be helpful in Greece, but it has nothing to do with reality," said Schäuble. "The Greek government is not doing its people any favours at all if it keeps making completely false statements. Nobody else is to blame for their situation. It’s all very sad. We’re in a much harder situation than before. It was always difficult. But it has just kept getting more and more difficult since January." 

Follow the money and it is clear that Schäuble is lying. He knows he's lying and he knows we know he's lying. The bluster is meant to paralyze criticism with its audacity.

Who Are The Very Serious People (Greece Edition)?

There has long been a meme in the econoblogosphere about Very Serious People (VSPs) in Washington who have been consistently hysterical without reason about budget deficits, with this group having a particularly strong and weird obsession with the US Social Security system, calling repeatedly for cuts in future benefits now because if this is not done, future benefits might have to be cut in the future (or, maybe, there might have to be a fica tax increase, but that is, of course, unacceptable to the VSPs, beyond the realm of possible Serious consideration).  Probably Paul Krugman has spread this term more widely than anybody else, whoever coined it, but many of us have used it a lot in regard to this group, especially about those running the editorial page of the Washington Post, led by its editor, Fred Hiatt, along with his columnists such as Robert J. Samuelson, Ruth Marcus, and others, with others scattered across various think tanks in Washington.

So somehow Tyler Cowen at Marginal Revolution has decided to use this term non-ironically in connection with the Syriza-led government in Greece, with him using the term "Not Very Serious People" in repeated posts starting from when they first began demanding changes in their agreements with the troika, even recently applying this when the "Greferendum" was announced (somehow this referendum is also not taken seriously by the VSPs of Washington, with Catherine Rampell on the WaPo ed page today referring to it as a "referendum," yes, in quotes, as if it will not be a real referendum). What is sort of weird about all this is that the usually cool-as-a-cucumber Tyler seems to be really upset about the Syriza bunch, not just thinking they are bad to be demanding to get out of paying debts or daring to question the authority of wheelchair-bound German Finance Minister, Wolfgang Schauble, who thinks he should be German Chancellor rather than Angela Merkel. No, from the beginning he seems to have been really rattled that self-proclaimed Trotskyists and Maoists are in the government, even though the actual domestic policy proposals by Syriza have been boringly center left.  These are dangerous people who must not be allowed to remain in power.  They seriously must be removed from power, possibly even by any means, with many of his commenters calling for a military coup with nary a whisper of questioning from Tyler of this argument.

Now it turns out that there is a curious link between the unhappiness over those Greek Not Very Serious People and the good old Washington VSPs, although I do not think Tyler Cowen has quite put this together, with his concerns apparently more  along Road to Serfdom grounds, not traditional VSP issues.  But in today's WaPo, good old Fred Hiatt weighed in on the Greek situation in an unsigned main editorial, "Say 'no' to defiance: Greece should try to reach agreement with its creditors."  Unsurprisingly, what Hiatt thinks they should do is simply accept the most recent troika offer, period, despite him recognizing that they have "already paid for austerity measures," although he does not spell out how severe those payments have been (25% decline of GDP with a 25% unemployment with a youth unemployment rate exceeding 50%). But, the bottom line is no criticism of the troika while "Mr. Tsirpas's defiant course is both unwarranted and unrealistic."  He does not say he is "Not Very Serious," but he is accused of "play[ing] games with the fate of Europe and the world economy."  Oooh, it is all his fault, none of that embittered old man's in the wheelchair or stuck-in-their-egos bureaucrats at the IMF who do not pay attention to their chief economist.

So, unsurprisingly, when it really gets down to it what has Hiatt worked up it is the refusal of the Greeks to cut their pension spending further.  As Matt O'Brien reported in yesterday's WaPo, there is in fact very little that separates the two sides at this point.  The Greeks have already substantially caved on austerity, basically agreeing to something very close to the primary surplus amount that the troika is demanding (ooops, they are now supposed to be called "the institutions").  The Greeks have proposed a number of further spending cuts, including for defense, and a bunch of increases in contributions to healthcare and pension funds and various taxes.  But this is not good enough.  Even though Greek pensions have been cut 40% since 2010 (something Hiatt fails to note, of course), they must cut pensions more, even though not doing this was an explicit campaign promise by Syriza and has been loudly announced as a "red line" by them, with precisely a threat to hold a referendum if they were pushed on this (but, hey, who would believe them, given that they are Not Very Serious People?).  Frankly, I do not see why the troika simply cannot go along with this to help Syriza save face given that they have already largely given away the store.  Maybe it is like Tyler Cowen, they really want to bring this government down because they just do not like them.

Of course, once he gets going on it, Hiatt just goes hog wild with his usual ranting and raving about the pensions.  He has failed to get his way on Social Security in the US, but, ah ha! here is his chance with Greece.  Make those Not Very Serious People cut their pension spending!  After all, it is "unsustainable," likely to be "unpaid" if they go forward with their demands, these being "extreme demands," (which might lead to a "state-run economy [with a]...geopolitical tilt toward Moscow").  On the other hand, the proposals coming from the troika are "financing on reasonable terms."  So, these worthless Greeks are just being Not Very Serious People.  Shame on them.  They need to get on with more cutting of pensions, and then they might become real VSPs, worthy of Hiatt's praise.

Barkley Rosser

JOE!

Guardian, Joseph Stiglitz: how I would vote in the Greek referendum

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

M-I-Teee... Squeeze you next week! I-M-F... Why? Because we "F" you! M-O U-S-Eeee

To be plainer, sir, how to solder, how to stop a leak, how to keep the floating carcass of a crazy and diseased finance system, betwixt wind and water, swimming still upon her own dead lees, that now is the deep design of a chief economist!

Greece: A Referendum on What to Do Yesterday

I'm posting a response I've written to a private email that praises Tsipras' announcement of a referendum scheduled next Sunday (July 5).  The email also asks why the IMF has been so obstructive over the past several months (and years).  My response:

I think a referendum was appropriate, but perhaps a month ago, not now. (1) The creditors never negotiated; they never horse-traded compromises. That was obvious from the beginning, and glaringly obvious when they responded to Syriza's final offer, which tiptoed across some red lines, with even more demands. It was always take-it-or-leave-it. Tsipras and Varoufakis were not honest with the Greek people, in my opinion, by repeatedly making optimistic statements -- they should have said "we can't negotiate with these guys" and put it to a vote right away. (2) July 5 is past the critical deadlines. Default occurs on June 30, and the ECB is likely to terminate ELA as soon as that happens. They are also likely to impose their own financial solution on the Greek banks as they did with Cyprus. By the time the 5th rolls around, voting on whether to accept the final creditor "offer" from two weeks previously will be like refighting the battle of Waterloo.

Now everything is about how to manage the crisis. I hope, with months to prepare, that Syriza has a well-developed program for this. (And one that takes into account that they do not yet control the state apparatus.)

As for the IMF, it was no secret that there has been a lot of tension between the technical staff and the politicians at the top. They have a policy, established after the Argentine fiasco, of not lending to insolvent states, but instead requiring writedowns from the creditors. Ah, but the creditors in the Greek case are the banks and governments that installed the IMF directors, so the policy is being flagrantly violated. Personally, I'm disturbed there have been no high-profile resignations on the part of the IMF economists. It's not like Blanchard couldn't pick up another job somewhere, for instance. Years down the road there will be memoirs saying "I argued against this behind closed doors", but when has that ever really mattered?

At the moment, no one -- absolutely no one -- playing a role in this mess is looking good.

Pay No Attention to the Plunging Stock Market Behind the Curtain

Meanwhile, elsewhere:

SHANGHAI — Share prices in China plunged on Friday in one of the sharpest sell-offs in years, accelerating a downturn this last week in what has been, for much of this year, the world’s best-performing stock market.

China’s two major market indexes fell in tandem. The Shanghai composite fell 7.4 percent on Friday. The Shenzhen composite fell even more, dropping 7.9 percent. Share prices in Hong Kong, which is regulated separately, also fell, by 1.8 percent. 

Analysts had been warning for months about the risks of a stock market bubble in China, where giddy investors have driven up stock prices by purchasing shares on margin, or with money borrowed from brokers.

The Shanghai composite is down about 18 percent from its June high. But in Shenzhen, the so-called ChiNext, a kind of Nasdaq-style board on the Shenzhen Stock Exchange for growth stocks, has dropped about 30 percent in the last several weeks, meaning it is already technically in a bear market.

Not to worry, though. The fundamentals are sound. It's a "buying opportunity"!

“This is not a bad thing,” Said Mr. Chi Lo, a senior economist covering greater China for BNP Paribas Investment Partners. “This is an opportunity for long-term investors to go back in. Many investors weren’t comfortable with those sky-high valuations.”

Tragedy of the Wages-Rut System

In a 2013 article, "Generalizing the core design principles for the efficacy of groups," David Wilson, Elinor Ostrom and Michael Cox recount Garrett Hardin's classic parable of the pasture overgrazed by farmers, each pursuing their own private interest by adding more cattle to their herd. Hardin's grim conclusion of a "tragedy of the commons" was shown to be avoidable  by Ostrom's Nobel Prize winning research, in that, "when certain conditions are met groups of people are capable of sustainably managing their common resources [emphasis in original]."

Wilson, Ostrom and Cox go on to discuss the evolutionary salience of those eight core design principles. Incidentally, Barkley Rosser was co-editor with Wilson and John Gowdy of the supplementary issue of Journal of Economic Behavior and Organization in which the article appeared and was co-author the editorial introduction to the issue, "Rethinking economics from an evolutionary perspective." I would welcome any thoughts Barkley might have on this post.

In generalizing Ostrom's core design principles from common-pool management groups to other kinds of groups, the article makes a puzzling omission: labor unions. They specify "governments, businesses, schools, neighborhoods, and volunteer organizations," but no mention  of organized labor. What makes this omission even more intriguing is that Garrett Hardin borrowed his analogy of the commons from the 19th century Oxford don, William Forster Lloyd who was using it to illustrate an argument about over-supply of the labor market and consequent unemployment and impoverishment of workers. Some Lloyd scholars have described his analysis as "proto-Marxist".

In 2010, when I was first drafting the Labor Commons Union idea, I sent a draft to Elinor Ostrom, who replied, "thanks -- had not thought about labor as a common pool that could be exhausted but now I see the similarity with resources." Paul Burkett had also seen the similarity and argued, in Marx and Nature: A Red Green Perspective, that Marx had treated labor power as a common-pool resource although he hadn't used that terminology.

So, if labor power is indeed a common-pool resource as Burkett and I argue and as Ostrom briefly acknowledged, it would seem that a common-pool resource management strategy would be more appropriate than a wages-rut system for establishing equitable compensation of labor. By the same token, the design principles identified by Ostrom and discussed in the paper by Wilson, Ostrom and Cox would be especially compelling.

Evil EuRobot and Abolition Implosion of the Wages-Rut System

Another evil of the robot is the ill-will it begets between the masters and the workmen: their whole lives seem to be a constant effort, on the one hand, to see how much can be pressed out of the reluctant peasant; and, on the other, how little can be done to satisfy the terms of agreement, and escape punishment. Mutual injury becomes a mutual profit; suspicion and ill-will are the natural results. -- John Paget. Hungary and Transylvania: with remarks on their condition, social, political and economical, Volume 1, 1839.

The "robot" referred to in the preceding paragraph was not a mechanical man or other device but a system of labor rent that existed under serfdom in central Europe.

Etymology of robota (from Wikipedia):

From Russian работа (rabóta), from Proto-Slavic *orbota (“hard work, slavery”) derived from *orbь (“slave”), ultimately from Proto-Indo-European *orbh- (“to change or evolve status”), the predecessor to *h₃órbʰos (“orphan”). Cognate with German Arbeit and Dutch arbeid.

Today, June 27, is the  150th anniversary of Karl Marx's declaration that workers "ought to inscribe on their banner the revolutionary watchword: 'Abolition of the wages system!'"

Sandwichman's effort to celebrate and revive this declaration has met with incomprehension in some quarters:

"How do you abolish the wages system by degrees?" 

"And how would that work?"  

"...there might be an interesting argument here, but I cannot understand what it is."

It is beginning to dawn on me that the euphemism "wages system" is a red herring that has been throwing people off the scent. Joan Robinson once famously wisecracked, "The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."

Sadly, Robinson neglected to clarify that the latter kind of misery was a prerequisite for the former. This was something Karl Marx had described long ago as comprising the "great beauty of capitalist production" -- "that it not only constantly reproduces the wage-worker as wage-worker, but produces always, in proportion to the accumulation of capital, a relative surplus population of wage-workers."

It is as a consequence of this relative surplus of wage workers that "the law of supply and demand of labour is kept in the right rut, the oscillation of wages is penned within limits satisfactory to capitalist exploitation." Thus it would be more accurate to call the wages system of capitalism the "wages-rut system."

Originally, I had intended to post today an updated exposition of  the Labor Commons Union as a practical proposal for the abolition of the wages system. Previously I outlined the proposal in a book chapter, "Time on the Ledger: Social Accounting for the Good Society" and had elaborated on aspects of the idea in "Hours of Labour and the Problem of Social Cost" and "Labour Power as a Common Pool Resource."

But I find it increasingly difficult to motivate such an exposition. However dissatisfied people may be with the effects of the wages-rut system, there seems to be a singular lack of interest in doing anything about the causes of those effects or perhaps a conviction that nothing can be done. I'm not here to exhort people to "do something!" or to persuade them that there is a possibility of doing something.

Part of my disdain for such cheerleading has to do with what used to be known as "the conjuncture". Observing current events, I am afraid that it is too late to speak of abolishing the wages-rut system. Capitalist production is no longer "beautiful" enough to produce a surplus population adequate to the exponentially-expanding accumulation needs of finance capital. A deeper rut must be imposed by fiat by the central authorities. In essence, this is a return to the labor rent system of feudalism -- the robot. The "euthanasia of the rentier" has been overtaken by the erection of a monstrous life-support system for finance capital.

Euthanasia Life Support System of the Rentier

...how to keep the floating carcass of a crazy and diseased finance capital, betwixt wind and water, swimming still upon her own dead lees, that now is the deep design of a central banker!