Read Carefully Before Signing: The Eurozone Crisis Narrative

A group of economists is circulating a document called Rebooting the Eurozone: Step 1 – Agreeing a Crisis Narrative.  (Their on is off.)  It was written by a high profile team including such luminaries as Richard Baldwin, Olivier Blanchard, Paul de Grauwe and Daniel Gros and asks readers to send in their own endorsements if they are economists.  A bunch of heavy-hitters have their names appended at the bottom.

For the most part it is a reasonable account.  The two main factors they identify are the imbalances that accumulated within the EZ before 2008 and took the form of excessive private debt and the absence of institutional features that would otherwise permit adjustment within a currency zone.  (Fiscal federalism and flexibility are not on their list, probably to obtain consensus across a political spectrum from center-right to center-left.)  They call attention to the partitioning of banking along national lines, which fed the “doom loop” of bailouts, macro deterioration, nonperforming loans, deterioration of sovereign debt in bank portfolios and greater vulnerability of the financial system to runs, leading to further bailouts etc.

I thought about signing on.  Then I stopped, reread the letter and saw a bullet point smuggled in at the end of their list of crisis-inducing features:

Interesting....  All the other bullet points have short explanations to convince the reader that the observation is correct and important, but not this one.  Perhaps the authors thought that a reference to the evils of “rigid factor and product markets” would be uncontroversial and obvious.  Or perhaps they can’t actually supply a justification based on agreed-upon research.  Or both.

There are two reasons why this little sentence bears attention.  The first is that it is probably wrong.  There has been a large volume of research on the relationship between price (especially wage) flexibility and macroeconomic performance, and the best you can say is that it is inconclusive.  In Europe at least, countries with the most “managed” labor and product markets tend to outperform the paragons of liberalism.  Of course, it depends on the time period.  During the 90s, when it was struggling to absorb the former GDR, Germany looked like a macroeconomic weakling, and economists were quick to jump on it for its elaborate “Rhineland Model” of worker participation, industry associations and public banks.  Now Germany is on top, and economists—well, they will talk about almost anything but the effects of the social market model.  Now it’s southern Europe that has sclerotic regulation that prevents it from being competitive.

But the second reason gets to heart of what’s wrong with this letter: it misses not only a key piece of the economics, but just about all of the politics.  It seems to assume that the reason the political elite of the eurozone imposed self-defeating austerity and failed to take low-cost, utterly feasible actions to defuse the crisis, like quickly extending lender of last resort protection to governments and their financial systems, was lack of economic information or understanding.  A great cloud of confusion has supposedly settled on the European capitals, and it is up to the good people of the Consensus Narrative to let the sun shine in.

I’d argue, however, that EZ policy has been consistent and even rational, if you adopt a different view of what the policy actually is.  Suppose the overriding goal of the elites is to use the leverage of Europe, and especially its common currency, to undo the post-WWII social compromises that are unbudgeable at the country level.  Reduce union power, cut back the welfare state, privatize public enterprises, get rid of the levers that permit public intervention in how companies are managed and run.  In that case, it would be dereliction of duty to permit countries to escape crisis without taking these desired measures, now packaged as “reforms”.  The “rigidity” bullet point summarizes this perspective, vitiating the whole point of the exercise.  The response to the narrative will be something like, “Yes, you have reasonable arguments, but as you acknowledge yourself, failure to reform is at the heart of the problem.  This is why we can’t simply support uncompetitive countries  without insisting on a corresponding package of reforms.”

No, I don’t think I’ll sign.

The Appropriate Term Is "Violent Jihadists"

Since the last Democratic presidential candidates' debate last on Saturday, I have been thinking about what is the proper term for those who carried out the attack in Paris.  Of course there is the specific group with which they are affiliated, which is best labeled "Da'esh," which is the Arabic name for them (from an acronym).  "Islamic State" and its relatives "ISIS" and "ISIL," which are competing acronyms granting them this "statehood," that they do not deserve are inappropriate.

But the more difficult question is the one that was posed at the beginning of the debate to the candidates: do you join the Republicans in calling the broader movement "radical Islam"?  While they sort of muddled things by saying that one should not "oppose all Muslims," that is not of course what the term "radical Islam" means, although it is not unreasonable to see that many completely peaceful Muslims might be offended by its use.  More precisely, however, the issue is violence.  So, there may well be Muslims who follow "radical" interpretations of Islam.  But such interpretations do not necessarily mean that these people support violently attacking innocent people as the those killing people in Paris were doing (as well as those killing people in Beirut a few days earlier).  While there may be some "radical economists" who support violent actions, most do not.  The word "radical" does not necessarily imply violence, even when attached to the word "Islam."

So what about "jihadi," the term used by Hillary Clinton in responding to the question?  Well, the problem here is that there is more than one meaning to the word "jihad" as it is used in the Qur'an. So, yes, those engaging in war for Islam get this label, but the more frequent use of the term has been to mean an internal spiritual struggle, a struggle that has nothing whatsoever to do with violence.  So, using the term "jihadi" also has problems. 

This extends arguably also to the slightly better term that Martin O'Malley used, "radical jihadi," which suffers from both of the problems noted above.  Neither term unequivocally implies the aggressive violence directed at innocent persons that is what is the real problem here.  Again, a radical jihadi could be someone who is engaged in an internal spiritual struggle, but one that is very profound and wrenching, a radical struggle that goes to their roots, but one that involves no violence.

So, I propose that the proper term is "violent jihadi."  This implies someone who is engaging in violent action for the purpose of religious war who also happens to be Muslim.  I  doubt these politicians will  pick up on this, but this term is accurate and I would also hope inoffensive.

Barkley Rosser

Cruz Mugs Trump, Hugs Lump

According to the Wall Street Urinal:

Immigration was also a flashpoint, with Ted Cruz slip-streaming Mr. Trump as an ardent restrictionist. He even embraced the lump of labor fallacy that the supply of jobs is so fixed that immigrants “drive down the wages for millions of hardworking men and women.” 

Not so. In a 2013 analysis, the Congressional Budget Office estimated that the bill that passed the Senate that year would have raised average wages by 0.5% by 2033. CBO also found that among the poorest workers, new immigrants tend to lower the wages of other immigrants, not native-born workers. That’s because they work in industries like hospitality and agriculture that are dominated by newcomers. Mr. Cruz is positioning himself to pick up nativist voters who now support Mr. Trump if the businessman fades.

Translation: immigrants working in hospitality and agriculture are not hardworking men and women. Gee, that's news to me. Is that why they call the WSJ a "news"paper?

The Strange Cult of Henry George

Having devoted EconoSpeak space to an argument by Thomas Shearman, a follower of Henry George, it is only fair and balanced to present the contrary view. I stumbled across the following comment on a libertarian(?) website. The possibility occurred to me that it may be satire (see paragraph 3):

We definitely need to strengthen our platform. It needs to be much more hard hitting and radical. 

This is especially true with regard to property rights. We must demand an end to all taxes on property. These are the worst of all taxes. They hurt the economy, causing increased: homelessness, pollution, poverty, resource misallocation, and misdirected infrastructure development. 

There is no such thing as “monopoly rents” or any of the other fascist socialist nonsense from the wacko marxists of the Henry George cult. 

The Libertarian Platform must call for the complete protection of Private Property rights: 

The Libertarian Party calls for the repeal all taxes on property by all levels of government. The property tax is the worst of all taxes. Free people who own their own land, farms, businesse property, apartments, condominiums, houses, homes or any other property must be left free by government to exercise sole dominion over their property. They must be allowed to live tax free and to use their property as they see fit. 

Property taxes deny individuals the right to become free, independent and self sufficient. Without property taxes, millions of Americans would be able to live without any income or participation in the cash economy. They are forced by the property tax to have an income and are forced into the hands of the government. 

The property tax consititues a "taking" of a portion of a person's property each year, without compensation. It should therefore be declared unconstitutional under the Constitution’s "takings clause" that requires compensation for the taking of property by the government. 

The Property Tax is absolutely the most evil of all taxes. It causes the greatest harm to the rights of the individual. It is the essential first component in the government’s tyrrany [sic] of taxation. 

No person can every [sic] be free so long as property taxes are allowed to exist.

Evil Effect of Robot, Rent and Taxation

Again with the damned robots. When it comes to robots, etymology matters. Czech playwright Karel Čapek's brother suggested the name to him, based on a word for forced labour. For example:

The system of rent by robot or forced labour -- that is, so many days' labour without any specification of the quantity of work to be performed -- is a direct premium on idleness. A landlord wishes a field of corn to be cut; his steward sends out, by means of his Haiduks, information to the peasants to meet at such a field at such an hour with their sickles.

Note that this robot in question isn't just any old forced labor but a payment of rent by obligatory labor. It is the price the peasants must pay for access to the parcel of land from which they get their subsistence.

The question of "robot" is thus inseparable from the question of rent. In the case of the electro-mechanical devices that have nowadays acquired the name, robot, the rents in question are the royalties due on the patents -- the intellectual property -- embodied by the machine.

What is rent? An anarchist pamphlet from 1892 stated, boldly, "Rent is taxation; taxation, rent..." A Georgist book from a few years later by Thomas Shearman, Natural Taxation: An Inquiry Into the Practicability, Justice and Effects of a Scientific and Natural Method of Taxation, elaborated on that seemingly circular definition:

To state the case is to demonstrate the justice of the tax. For what is here proposed is simply this: To tax the proceeds of taxation, and nothing else. 

For ground rent is taxation, and nothing else. The power to collect ground rent is a delegated power of taxation. 

Can anything be more just than for the State to draw its revenue from the proceeds of such taxation and from nothing else? Privilege of collection implies duty of payment. The duty of providing for the whole support of government is indissolubly attached to the right of collecting ground rent. The landlord, as the only natural tax-gatherer, is also the only natural revenue-provider. Every man who buys the privilege of taxation assumes, by the very act, a proportionate share of the burden of government expenses. No lapse of time, no misconception of the situation, no unwise or excessive payment for the privilege can ever relieve him from this inherent obligation.

Curiously. though, those who have benefited most from the powers of taxation granted to them by government are most vociferous in their objection to their "private property" being taxed, as Shearman observes, a few pages later:

Confiscation  

It will be said, of course, that this method of taxation is mere "confiscation"; and, to the minds of many, this will be a conclusive objection. It is to be regretted that the brilliant author of Progress and Poverty should have even once used this word; thus seeming to identify the cause of equal taxation with apparent robbery and to confound justice with injustice. Although such may not have been its original meaning, yet by long usage "confiscation" is understood to mean a punishment for crime or moral incapacity. We are not at liberty to confiscate, in this sense, either land or its rent.  

But no question of confiscation arises in the case. If all the land belongs to all the people, if past generations had no power to alienate it from the control of the present, if its rent is now wrongfully withheld from the people, their taking the whole of it would be merely a just resumption of their own, not confiscation. And this is all which Henry George ever meant; as page after page of his book clearly shows. It is not necessary, however, to discuss that question here. We are not inquiring into the wrongs of the past or even into the general rights of the people in the present. We are considering only the proper method of raising necessary revenue.  

Class legislation 

The only pretence for charging that this method is a measure of confiscation is founded upon the allegation that it is unjust to put the whole burden of taxation upon a single class. In the light of past history, during which the owners of land have used all their powers, with immense success, to get rid of all taxes upon themselves and to cast the whole burden upon the landless poor, their present remonstrances, sometimes pathetic, sometimes ferocious, against a reversal of their methods, are highly entertaining. Every tariff duty, every excise tax, every indirect tax bears witness to the persistent ingenuity with which the collectors of rent, the natural tax, have shifted the burdens of public taxation upon other shoulders. Not one dollar of our vast federal revenue is collected from rent. Nine tenths of it is collected from the comparatively poor. Great Britain has been hitherto governed by large landlords: America by small ones. Both alike have evaded the taxation of rent as much as possible. Both alike have never hesitated to ruin vast numbers of their fellow citizens, by sudden, arbitrary and disastrous changes in methods of taxation. Both alike have never dreamed of allowing the smallest compensation to the victims of their caprice. But, as only great landlords can make a profit out of such methods, British landlords have made themselves wealthy in this way; while the mass of American land-owners have plundered themselves for the benefit of a few.  

Compensation 

There is no precedent for the doctrine that taxation must be spread over the whole community, and still less for the novel claim that the State is bound to compensate taxpayers for the payment of taxes. When will any congress compensate Americans whose property was destroyed by changes in the tariff?  

Originally, all land was granted by the State upon the express or clearly implied condition that the grantee should provide for all the expenses of government. The land-owners gradually shifted the burden off their own shoulders, by new taxes on the non-voting population. But even they had not the audacity to make a perpetual covenant between themselves and the government which they controlled, for exemption from taxation. The plea of their successors is that, by long failure on the part of the people to demand their rights and the performance of the conditions upon which the land was granted, landlords have been led to believe that such a demand would never be made; that many of them have paid large prices for the privilege of charging rent, in the belief that rent would never be taxed; and that it is unjust for the State to change its policy in this respect, without giving to them as much with one hand as it takes from them with the other.  

The argument is just as valid in favor of kings and nobles; and it has been urged upon their behalf with equal sincerity. Down to 1788 French nobles were exempt from most taxes. Many men (like Beaumarchais) bought a title, partly for the sake of this exemption. The French Revolution swept away all these privileges, without a shred of compensation; and all the world now says that this was perfectly right. But to an army of tax-eaters in those days it seemed monstrously wrong. The parallel is complete.  

Compensation for vested rights

The concentration of all taxes upon ground rents, if enacted at the foundation of a state, would obviously be simple justice. Why is it not equally just at any later period? "Because," it is said, "there have been many changes of ownership: vested rights have sprung up: new men have bought the land from the original owners, paying a much larger price than they would have paid if it had been understood that rent would be taxed. Heavy taxation will destroy the market value of the land; and this would be robbery under the forms of law."  

What is this land value, which is so sacred that it must not be heavily taxed? Nothing in the world except the value of a power, conferred upon individuals, to tax other individuals for the privilege of standing upon the earth. It is the only kind of property which cost the original owner nothing, in either wealth or labor. Every other form of property was called into being by honest human skill and labor, and was therefore fully paid for. Property in ground rents was, in every instance, originally acquired either by undertaking to bear the cost of government, as in feudal times, or by gift or theft, just as we have seen it acquired in Oklahoma. No doubt, thousands sacrificed much, in the pursuit of Oklahoma land, by hanging on the borders of the territory for weeks, waiting for the day upon which the gift was to be made. But by doing so they no more gave value for the land, than beggars give value for what they get, by standing hat in hand all day long.  

It is true that this power to levy taxes upon other men has been sold, over and over again, at increasing prices, and is now generally held by men who paid something of value for it. But what of that? The State never pledged itself to exempt this privilege from taxation, or to limit the amount to which it will be taken for public purposes; and no legislature has any moral right to do so. The present owners of the taxing power have bought upon a speculation, and must take all the chances of speculation. Among those chances is the possibility that the State may call for no part of the tax collected under the name of rent, and, on the other hand, the possibility that it may call for nearly the whole of it. All other forms of property are bought on a similar speculation.  

Iron, steel, glass, crockery, tin plates, buttons, laces, whisky, apples, eggs, horses, cattle, mortgage bonds, bank stocks, railway shares, and hundreds of other things are bought and sold, with full knowledge that there may be sudden and vast changes in the rates of taxation upon them, made without notice, without the slightest scruple, and without even a thought of compensation to the many who suffer thereby. The tax on whisky was suddenly raised to 50 cents, then to $1, then to $2, then reduced to 50 cents, then raised again to 90, and all without the slightest compensation to anybody. The tariff taxes were suddenly increased 50 per cent, all around, in 1864, in one night, without notice and without a dream of compensation.  

Why, then, this amazing and unexampled tenderness for speculators in the privilege of taxing their fellow men? The answer is easy. Most of the losses arising from increase in other forms of taxation fall upon the masses of comparatively poor, because the burden of such taxes is shifted upon them. None of the loss arising from an increase of taxation upon ground rents would fall upon the poor; because that burden cannot be shifted upon anybody. It is the old, old story. The right of the rich to plunder the poor is a vested right, sacred, even in the eyes of the poor themselves, through long training in abject servility.

Ben Carson and "The Secret Life of Walter Mitty"

An excerpt from The New Yorker:

A huge, complicated machine, connected to the operating table, with many tubes and wires, began at this moment to go pocketa-pocketa-pocketa. “The new anesthetizer is giving away!”shouted an interne. “There is no one in the East who knows how to fix it!” “Quiet, man!” said Mitty, in a low, cool voice. He sprang to the machine, which was now going pocketa-pocketa-queep-pocketa-queep. He began fingering delicately a row of glistening dials: “Give me a fountain pen!” he snapped. Someone handed him a fountain pen. He pulled a faulty piston out of the machine and inserted the pen in its place. “That will hold for ten minutes,” he said. “Get on with the operation.”

What Makes Ben Lie?

What kind of "civil dialogue" is making up a nasty thing that somebody never said and attributing it to them? What kind of pathological liar feels compelled -- and authorized -- to make up things that can be easily refuted with a text search?

Never has Saul Alinsky said in any book -- or other publication -- "Never have a conversation with your adversary, because that humanizes them and your job is to demonize them." A total fabrication.

"Gas All Boomers" Or At Least Tax And Cut Their Benefits More Says WaPo

No, nobody in today's Washington Post Outlook section devoted to the boomers said that first line, although it has become a commonplace on such sites as Economics Job Market Rumors where anonymous and frustrated millennials very frequently and fervently spout that opening line to the point that it lost whatever ironic humor it had some time ago.  But then irony is a Gen-X thing, not a millennial or boomer thing.

However, taxing them more and cutting their benefits is certainly called for by new economics reporter (and Gen Xer) James Tankersley, in an astoundingly bad article full of so much nonsense one does not know where to start.  He claims that because of their huge numbers, none of this will happen, even though the latest budget deal has in fact cut benefits for them (really for everybody not already receiving them, but with front end boomers the most likely to have been counting on those now cut benefits in the near term, see my post on this here).

While I shall deal with Tankersley's numerous misrepresentations, let me note more of the anti-boomer venom filling this special issue (Is this WaPo trying to market to millennials?).  So, Heather Havrilesky has the following:

"For the remainder of the decade, we can expect a brand-new wave of melodramatic retrospectives, each designed to remind us of a magical time when boomer heads were packed full of  idealistic notions and covered in lustrous free-flowing hair.  But just as what goes up must come down, what frolics in the mud of Woodstock must eventually sulk in the flourescent chill of the cardiology office. Somehow as boomers age, their commitment to dragging that dusty 60s archival reel out of the basement yet again seems to grow exponentially"

[I shall accept that some of this complaining is not without merit.  Her eventual take is that people now should take things as seriously now without looking back to the 60s either for inspiration or comparison, especially invidious comparison, and that starting in the 70s and on the more conservative majority of the boomers took over the show.  But mostly she is whining and snarking.]

Not quite as hostile is the much older Landon Y. Jones, one of the early coiners of the term "baby boomers." who declares:

"The designation has to do with coming of age at the right time. They enjoyed sex, drugs, and rock-and-roll, took all the good jobs and are now retiring and becoming a burden on society," which is the gist of Tankersley's whine, although Jones is mostly interested in the origin of the term and how it has been used indifferent countries rather than blasting on and on in this vein, which is in fact him reporting on the views of the late Dutch critic of the boomers, Pim Fortuyn.

Before going to Tankersley, I will note one other writer a bit more sympathetic to the boomers, Shirley Abrahms, who dispels five myths about them.  Supposedly, in spite of Tankersley et al, they are not as wealthy as widely thought (although some are), they are not clearly much healthier than their parents (and the recent Case-Deaton report on middle aged white males dying sooner since 2000 fits in with this, although she did not mention that), that boomers are reasonably charitable rather than just being "selfish," that they are not as technologically incompetent as many think, although certainly Xers and millennials are more  competent than they are (not to mention the rising post-millennials now beginning to make their first appearances), and finally that their sex lives are not total disasters, although aside from all the viagra and cialis ads, I was under the impression that they were mostly being criticized for having been too much into sex, etc., although perhaps that wicked past had supposedly led to a pathetic present.  For all her wisdom, Abrahms undercuts her own credibility by somehow thinking that 18 year olds were voting for LBJ in 1964, which was most definitely not the case (why is it that WaPo has gotten so bad that even its supposed fact checkers goof up?).

So, on to Tankersley, regarding whom I really wonder if either he or his anti-entitlement bosses are aware just how totally off this debut article is.  I am not going to quote and will not answer everything, but will try to focus on some of the biggest bloopers.  I shall also note that near the end of his article that a lot of the problems he identifies are really a matter of the large numbers of boomers and not any clearly intentional actions.  But this does not absolve them from deserving to "pay more" somehow for all the damage they have supposedly caused.  A main thrust of my response will be, if indeed they were causing all these problems, were not the earlier Silents and Greatest at least as guilty, if not in some cases worse?

OK, I shall quote one paragraph, which summarizes most of his complaints:

"Boomers soaked up a lot of economic opportunities without bothering to preserve much for the generations to come.  They burned a lot of cheap fossil fuels, filled the atmosphere with beat-trapping gases and will probably never pay the costs of averting catastrophic climate change or helping their grandchildren adapt to a warmer world.  The took control of Washington at the turn of the millennium, and they used it to rack up a lot of federal debt, even before the Great Recession hit."

Yikes!

For starters let us note that the stagnation of real wages began in the 1970s, about the time when most boomers entered the labor market.  So both the Greatests and the Silents did much better than the boomers on that one, with the period of rapidly rising real wages being 1945-73.  Yes, the early Greatests suffered in the Great Depression and fighting in WW II, but those amazingly quiet Silents really raked it in.  Look at somebody born in 1930.  only barely experiencing the GD as a child and not having to fight in WW II, if experiencing the privations of rationing, again as a young person, but then entering the job market in the late 40s and having the full experience of that postwar boom, well into middle age when the wage growth slowed, and in their 50s when fica taxes rose sharply as part of the Greenspan Commission's 1983 deal designed to "make sure the baby boomers pay for  their own retirement," which mostly they have despite the misrepresentations of Tankersley.  There were no payments for  COLA recipients prior to 1971, but any Greatest or Silent retiring not too long after it was put in then paid zippo into Social Security but got many times what they paid in benefits, far more than the boomers will get (who so far have not whined about this latest benefit cut, which Tankersley ignores, needless to say).

Tankersley's spin is that even though wages have not risen, a point he ignores, boomers got promoted to higher salaries as they aged.  While indeed growth has reverted to its 1975-95 average, there is no reason that Xers and millennials will not be able to have such promotions either. After all, the boomers are now indeed beginning to retire in serious numbers, opening up all those upper tier jobs for their juniors to earn more.  The idea that SS and Medicare will not be there is of course the biggest phone screed that WaPo hands out, when in fact the projections have the millennials receiving more in benefits than current recipients, even if the system "goes bankrupt," not that Tankersley is anywhere near even being conscious of this I think.  And, of course most of those projected increases in costs are tied to medical care cost increases, which hopefully will be kept more in line in the future.

Then we have all this stuff about burning fossil fuels and ruining the environment.  Last time I checked, the golden era of gas hog polluting cars was the 50s and 60s, with environmental laws arriving in the early 70s and with higher oil prices leading to much greater gas efficiency of cars. This backslid in the later 80s and 90s when oil prices fell and we got the SUV boom.  But offhand the Greatest and the Silents look at least as guilty, and frankly more so, on this matter of polluting the atmosphere than do the boomers, whose main sin would indeed to be their large numbers, not their excessively polluting ways compared to other generations.

Then we get this weird claim that the millennials "took control of Washington at the turn of the millennium," thus making "the boomers" responsible somehow for the clearly irresponsible policies of George W. Bush, even though he lost the popular vote in 2000.  But Bill Clinton is a boomer, and he was in charge in the 90s, when the national debt actually fell. Do not the boomers get some credit for him?  Or do we only get the blame for his sexual improprieties?  The more striking increase in non-war debt came with Reagan, he of the Greatest Generation, with some of the boomers not even old enough to vote when he came in.  Surely he was more a creature of the Greatests and the Silents, with their failure to obey rational expectations and Ricardian Equivalence by lowering their savings rates when they got his tax cuts (with income tax cuts indeed offsetting those fica increases aimed at the boomers).  

He goes on and on about a lot more, but I think I am going to stop here other than to note that he opens by complaining about people talking about raising the retirement age for future retirees not somehow noting that indeed the 1983 agreement put in place such increases for the boomers, increases which are already happening and will continue to do so. Really, this article is a disgrace.

Barkley Rosser

Added on 11/17/15:  It is not men but women among poor whites for whom their death rates are rising among 45-54 year olds.  Also, I apologize to anybody offended by my failure to capitalize the names of patented medicines for overcoming edf, not to mention fica.

Parsing Portugal

Horrors!  Another European country threatens to slip the grasp of austerity.  Be prepared for the worst.

That seems to be the message of this morning’s New York Times article about Portugal’s political crisis.  The problem, if you want to call it that, is that the governing conservatives came up short in the last election.  Three parties of the left—the Socialists, the Communists and the Left Bloc—between them got a majority of the seats in parliament.  The president, Cavaco Silva, also a conservative, has turned to Passos Coelho, the head of the conservative alliance, to form a government, but the left deputies have vowed to deliver a vote of no confidence this coming week.

Now, in a normal democratic country people would say, “It looks like the voters have shifted to the left and rejected austerity.  The new government will reflect that.”  But we are talking about the Eurozone, where such sentiments are viewed as subversive—not only by the eurocrats but also the media, including the Times.

So we are treated in this article to the notion that austerity policies “are credited with arresting Portugal’s economic slide” and that the country is now in the “early stages of a recovery” which is threatened by the “uncertainty” caused by the latest election.  The country’s “structural reforms” are at risk, and Portugal now “hangs by a thread”.

The article goes so far as to say

If the Parliament rejects the government’s economic program on Tuesday, it will leave Mr. Cavaco Silva with a hard choice.

He could either allow the left to form a government that promises to unwind part of Portugal’s austerity program, or he could leave Mr. Passos Coelho in place as what promises to be an ineffective, caretaker prime minister until new elections can be held.

Either outcome seems destined to leave the country in a prolonged crisis....

It’s time for a little reality check.  Here is Portugal’s real GDP from the onset of the crisis in 2008 to the most recent statistics.



And here is the unemployment rate:



What's that about a "prolonged crisis"?  Portugal’s economy is still well below where it was seven years ago, and unemployment continues to be an immense problem.  And all of this is unnecessary.  Portugal did not suffer some mysterious disappearance of productive assets or skills or natural resources; this is a predictable result of policies that deliberately seek to suppress output and employment.  That’s what austerity means.

If there is a criticism of the political rebellion in Portugal, it is that it has been so long in coming.  We are now at a moment, however, when democracy and economic sanity have converged.  If there’s a crisis, its source is not Portugal but the dictates of the eurocrats.  If they are looking for stories about how hard it is to extricate yourself from poor choices, the Times could send its reporters to Brussels and Frankfurt, not Lisbon.

Isn't "Third Way" a Euphemism for Fifth Column?

The "Washington Wire" blog at the resolutely non-partisan Wall Street Journal features an article about "a new 52-page report from centrist Democratic think tank the Third Way" that warns against populist, redistributionist messages.

Who is this Third Way? According to Wikipedia: "The board of the Third Way is made up almost entirely of investment bankers and other Wall Street executives." Wikipedia cites as their source a Nation article from 2013, "GOP Donors and K Street Fuel Third Way’s Advice for the Democratic Party."

Buried inside the annual report for Third Way is a revelation that the group relies on a peculiar DC consulting firm to raise half a million a year: Peck, Madigan, Jones & Stewart. Peck Madigan is no ordinary nonprofit buckraiser. The group is, in fact, a corporate lobbying firm that represents Deutsche Bank, Intel, the Business Roundtable, Amgen, AT&T, the International Swaps & Derivatives Association, MasterCard, New York Life Insurance, PhRMA and the US Chamber of Commerce, among others.

So What Really Happened When Bob Solow, Tyler Cowen, and Noah Smith Went Into A Chinese Bar?

This is a meme out there that I shall not link to because it is all over the place. All I am going to do is provide my own version of what really happened, which I have posted various versions of which both Mark Thoma and Marginal Revolution have on their lists, but way down low on their threads.  And in fact I think most of the serious discussion of this on various venues has been ignorant garbage, including by many of the principals. 

So, Bob Solow, Tyler Cowen, and Noah Smith enter a Chinese bar to debate the curious vicissitudes of the current path of the Chinese economy.

Bob orders a Tsingtao beer. He is brought one, but it only fills 13% of his glass.  He asks where the residual is. Both Tyler and Noah assure him that they will resolve this mystery, despite the well-known problems with Chinese macro data.  He promises to think less about sex, having some decades ago having accused Milton Friedman of spending too much time thinking about M.

Tyler orders hot tea, and proceeds to praise the bar for having a menu that shows the influence of  such advanced foreign technological innovations chow mein, chop suey, and egg foo young.  Clearly this bar in on to the global trends, even as Tyler notes that they seem to be ignoring traditional provincial cuisines such as Sichuanese and Yunnanese. I mean, yuk.  But in any case he did the best he could to praise technogical innovation before he was thrown out and ended up being run over by a driverless tank in Tiananmen Square.

As for Noah, well, this notoriously Japanophiliac was clearly in a  difficult  location.  Of course he ordered sake and sushi.  The bartender served  him multiply spiked mao tais along with large plates of chop suey.  Before he passed out he declared that what the Chinese should do is to build many more breweries mildly adjusted from the original German-modeled plant so that Bob could have as much good "Chinese" beer as he might choose to consume.

Barkley Rosser

PS:  The original post by Dietz Vollrath is here. For what it is worth Vollrath sides with Noah against Tyler mostly.

Did Bernanke (And Crew) Save The World?

I have not yet read Bernanke's new book, The Courage to Act, but plenty of people on both the left and the right are mocking claims made by many that Bernanke and crew "saved the world" by their actions in September, 2008.  Most of the focus of these discussions has been on the TARP bank bailouts along with the creation of a bunch of special lending entities, most of which were shut down later.  Those on the left tend to argue that we would have been better off letting some more big banks fail, along with throwing at least their CEOs and CFOs in jail. Those on the right worry about all the moral hazard hyped up by TARP as well as the more than doubling of the Fed bank balance sheet that happened in the next few months, going from roughly $900 million to about $2.2 trillion by  thge beginning of 2009, with this supposedly setting us up for that hyperinflation that is still supposedly going to come some day.

"Save the world" is awfully dramatic, but indeed the buzz by those defending Bernanke has been that this moment was like September, 1931, when the rolling international financial collapse that had started in May of that year in Vienna with the failure of the Creditanstalt finally hit the US shores hard, and the Fed did nothing, with this being reported and criticized by Friedman and Schwartz in their Monetary History of the United States, the work much on Bernanke's mind and to which he has referred, even famously promising Friedman at one point that he would never let that happen again, the failure to prop up the banking system in September, 1931, which indeed was followed by a massive wave of bank failures, and a severe plunge of the US economy into the Great Depression.  If he saved the world, it was that he prevented that. But many are skeptical, particularly with regard to TARP and the assoicated bailout of AIG.  The bums should have been shut down and jailed.

I have reported on this previously, but I think have again become aware of how few people understand what really went down in September, 2008.  We just had a well-known economist in yesterday, who will remain unnamed, who when I told him what really went down dismissed the whole thing as "a conspiracy theory."  It can sound like it if one does not know about it. But in fact this was a successful conspiracy that has been since made public, but about which many seem not to know, including professional economists who really should know better, even if they would still disapprove of it.

So, the most crucial action was not TARP or the AIG bailout.  It was the decision on September 18, 2008 to open swap lines to foreign central banks, especially the ECB, which were under heavy pressure and facing a complete freeze of their financial markets due to a plunging euro and lack of dollars.  This is recounted in Chapter 11 of Neil Irwin's The Alchemists from 2013.  They immediately approved $180 billion of lending, but  by December this had amounted to $580 billion, leading to eurojunk sitting on the Fed balance sheet.  This was nearly half the increase in the Fed balance sheet.  This increase would be gradually worked off over the next six months or so as the agreement in December to purchase $500 in mortgage-backed securities was approved, and these were accumulated as the eurojunk got rolled off.

If Bernanke and crew saved the world, this was the moment, and the parallel with 1931 is precisely that it involved the world economy and financial system.  In 1931, the world financial system was already going down the tubes, but the Fed let the US system join it.  In 2008, the crisis was emanating from the US and its subrime lending crisis.   The Fed effectively kept this from leading to a 1931 outcome in Europe and other nations as well.  Why it was kept secret what they were doing (although it was publicly knowable to those following the details of the Fed balance sheet at the time) was that the Europeans, particularly Trichet and those leading the ECB, did not want people to know how fragile their situation was for fear of generating a full-blown panic, which was indeed avoided. People should keep this in mind, even if they think CEOs should have gone to jail or we are about to experience hyperinflation or whatever other dislike they might have about Fed policies of that time.

Barkley Rosser

From The Personal Is Political to The Political Is Personal

Once upon a time the personal was political.  Do you have a problem in your personal life?  Men treat you badly?  Your classes are authoritarian and stultifying and make you hate school?  Your boss is a jerk?  Take it public.  You may find out that thousands, even millions of others have the same “personal” problems and that political action—joining together with other women or students or workers—can do for you what sulking or private griping can’t.

Now the political is personal.  We still have racism, but the solution is for white people, one by one, to look inside themselves and confront their personal bias.  There is mass poverty and oppression across the globe, and the solution is for each of us in the wealthier countries to be more careful shoppers, avoiding goods produced with the most exploited labor.  Climate change threatens to overwhelm us, and to act against it we should examine our individual carbon footprints, drive less, eat less meat, change our light bulbs.

Of course, the political and personal overlap from both directions.  Surely we need both.  But an intensified quest for personal virtue can hardly substitute for a retreat from collective action.

Does Christianity admit of private property?

The following catechism on selfishness appeared in an article titled "Serious Questions of the Hour" in the November 1874 Shaker and Shakeress Monthly. A large portion of it was quoted in Richard T. Ely's The Labor Movement in America (1886). I have reformatted the text, breaking questions and answers into separate paragraphs.

SELFISHNESS

Does Christianity admit of private property? 

It does not; never did. 

Do Christian churches permit distinctions of dress, diet, or other comforts, among the members? 

Never. 

Are there any rich or poor Christians? 

None whatever. 

Why are there so many rich, and particularly why are there so many poor, in the so-called Christian churches of to-day? 

Because such churches are not Christian. 

Can these be brethren and sisters of Christ while faring so unequally? 

Never. 

Why are there no rich nor poor in Christ's church? 

The formerly rich "lay down" their plenty; the formerly poor do likewise with their poverty, and hence share equally. 

Who, then, are the rich and poor? 

The children of unresurrection, who will give up neither their riches nor poverty for the Gospel's sake. 

Who amass fortunes and live in palatial residences? 

Unfeeling men and women, erroneously termed Christians, who are careless of how many are made correspondingly poor. 

Who are the mountains and valleys of scripture? 

The rich and poor. 

What is the mission of Christianity to such? 

To bring down the mountains; raise up the valleys — Inaugurate an equality — none possessed aught he could call his own.   

What wonderful phenomena accompany conversions to Christianity? 

Mine becomes Ours! Riches and Poverty, with their miseries, disappear. 

George Will Starting Out Smart And Going Dumb On Anti-Semitism

In today's Washington Post George Will follows up on a new book by Timothy Snyder about Germany and anti-Semitism, also drawing on earlier work by Daniel Goldhagen.  He finds in their work that Binyamin Netanyahu's claim that Hitler was convinced to do the Holocaust by Jerusalem muft Haj Amin al-Husseini is nonsense, a claim that Netanyahu has now apparently withdrawn and even apologized for making.  Will notes that Snyder and Goldhagen argue that Hitler drew both on longstanding German views, but also was especially convinced even at the time he wrote Mein Kampf in the 1920s that racial conflict was the driving force of history, a winner take all violent conflict, and that the Aryan-Semite conflict was the most important.  He was definitely already geared up to try to kill all Jews long before the mufti showed up in Berlin in 1941 and had already done in about 700,000 by then.

Apparently Snyder talks about this also, but I do not know what he says, but Will interprets as saying that the same holds for Iran today.  They are also convinced of a deeply rooted need to commit genocide against Jews and to destroy not only the state of Israel but Jews living there and apparently elsewhere as well, although Will is less clear about this latter point.  There are serious problems with this argument, which is widely repeated and believed in much of US media, with a lot of this coming out of the debates over now completed Iran nuclear deal, with many still claiming it will lead to them getting a bomb and using it to nuke Israel and engage in genocide.

So, one problem has long been that while there have been leaders in Iran who have questioned the Holocaust, or at least details of it, none of them has ever called for such a thing.  Lots of them, including current Supreme Leader Khameini, have called for the ending of the state of Israel and its replacement by a state elected by all longtime residents of the former British mandate of Palestine, none of these have called for the killing of Jews except in self-defense, with the most drastic call being for the expulsion of more recently arrived Jews from what is now Israel.  Most of the reports of plans for genocide have been based on mistranslations from the Farsi, and Khameini has gone out of his way to explicitly deny any such intentions.  He does not like the state of Israel, but he strongly opposes the killing of Jews.

This has a lot of credibility because in fact Iran has the largest Jewish population of any predominantly Muslim MENA nation at around 15-25,000, with these even having a representative in the Majlis.  Does this mean that they suffer no discrimination?  Hardly.  They do.  But their treatment has been far better than in their Arab neighbors, many of which had much larger Jewish populations prior to 1948, but which have seen the vast majority of their Jewish populations leave for one place or another since then, if they have not been killed outright.  Probably Morocco has the second largest Jewish population in MENA, but less than half of what Iran has, with them lacking some of the protections their Iranian co-religionists have.

So, Will has played into an anti-Iranian meme pushed by hardline Israelis, even as he has joined  in on the deserved bashing of Netanyahu's nonsense about the muft of Jerusalem.

Barkley Rosser