Wednesday


Saint Augustine made a distinction between progress for the City of Man and progress for the City of God.

Recently I wrote about progress in Biology Recapitulates Cosmology where I contrasted Stephen J. Gould’s explicit anti-progressivism to more recent forms of progressivism found in futurism and technological thought. Western thought has a long history of finding both progress and decadence in its own historical record. Even as St. Augustine was writing while the Roman Empire was falling apart and there were barbarians literally at the gates of Hippo where Augustine was Bishop, Augustine acknowledged that the City of Man was in a bad way and likely to get worse, but the City of God was going from triumph to triumph as divine providence led the way — thus rescuing a kind of progress from the ruins of a civilization in the process of collapsing around him. Augustine’s was a brave gambit, and later attitudes tended to be more narrowly progressive or declinist, not making the distinction that Augustine made.

Is Augustine’s thought an example of smuggling progress into human history by way of divine providence, or are contemporary conceptions of progress a secularized formulation of divine providence, as Karl Löwith would have argued? This is an interesting question, but I am not going to try to answer it here. I have strong views on this, and I want to write a detailed post (or several posts) specifically about this question (though I have already written some specifically about the idea of secularization, in addition to citing Löwith’s influential work in several posts, such as Addendum on ontological extrapolation, Addendum on Incommensurable Civilizations, The Feast of Saint Nicholas, and Marxist Eschatology).

In any discussion of progress one must carefully distinguish between the kinds of progress that are possible. For example, we can distinguish at least technological progress and moral progress and aesthetic progress, just for starters. One might explicitly argue for technological progress, and all those measures of quality of life directly attributable to technological progress like per capita GDP, access to clean water, and so forth, while saying nothing about moral progress or aesthetic progress (as seems to be the case with Kevin Kelly’s explicit argument for progress in What Technological Wants). I don’t think that many people today would assert that the pictures painted today are obviously better than the pictures painted in the past even if our technology seems obviously superior. Therefore aesthetic stagnation might go hand-in-hand with technological progress. I also doubt that many today would argue that we are becoming obviously more ethical with the passage of time and the growth of technology.

It would also be a good idea to distinguish between stagnation and retrogression, so that we are thinking in terms of a continuum that runs between the polar concepts of progress and retrogression, with stagnation as the “golden mean” between the two (as it were). It is common to use the term “stagnation” not only to indicate a socioeconomic system that is moving neither forward nor backward, but also for socioeconomic systems that are losing ground and moving backward. Thus making the distinction between stagnation and retrogression, and placing both in relation to progress, allows us to differentiate societies that are static from societies that are declining. For lack of a better term, we can call the continuum between the polar concepts of progress and retrogression the continuum of progress.

To gain a proper appreciation for the role that the continuum of progress has played in human affairs we must further distinguish the perception of progress, stagnation, or retrogression from any quantifiable measure of progress, stagnation or retrogression. If we want to think about economics in isolation (i.e., in isolation from other possible social measures of progress), we can immediately see the significant role that perceptions play, as it is often claimed that the collective action of declining consumer confidence can cause an economy to go into recession even if there is no other trigger for an economic downturn. Keynes’ remarks about the role of “animal spirits” also has a role to play in economic perceptions in contrast to economic reality.

Human beings being what they are, a significant divergence between appearance and reality can be maintained for some period of time if enough people are prepared to delude themselves. This is am important point, so I want to go into it in more detail, and most especially I want to elucidate economic appearance and reality in terms of two philosophical ideas: self-deception and the sorites paradox.

I have mentioned in other posts that I think the role of self-deception in human affairs is greatly underestimated. Self-deception is simply lying to oneself, and it is especially associated with the thought of Jean-Paul Sartre. People lie to themselves all the time, and for a variety of motives. If you approach life as though everyone was always on the up-and-up, you will soon find yourself disabused of that illusion, for it is illusion rather than reality that is the order of the day in human affairs. Human society only exists in virtue of a complex tapestry of fine-crafted duplicity that people teach themselves to believe in as the price of being part of any society.

The sorites paradox is an ancient idea associated with the ambiguous use of terms. If you have a heap of grains of sand, and take away one grain of sand at a time, when does it cease to be a heap? Contrariwise, if you begin adding one grain of said to another, when does it begin to be a heap? The same paradox is also formulated in terms of baldness: if you pluck the hair off a head one by one, when does the head qualify as being bald?

So, what do self-deception and the sorites paradox have to do with the continuum of progress as it applies to economic appearance and reality? Economic progress is one of the most quantifiable forms of progress of all human endeavors. Whatever economic measure we care to take — GDP, per capita GDP, steel production, potable water, and so forth — we can measure these and monitor progress based upon them. If you decide that progress is a nation-state in which there is a chicken in every pot, you can measure if there is a chicken in every pot, and how often, etc. So it would seem, given these relatively discrete measures, that the measurement of economic progress would be difficult to fudge.

Nothing could be further from the truth, and much of this has to do with the predominant role that human perception plays in large economies that can only be measured statistically. Because of the potential divergence between economic perception and economic reality, a population might believe itself to be experiencing progress even while it is moving backward. Or a population might believe itself to be moving backward even while objective measures demonstrate progress (of whatever sort of progress is defined as progress by that society).

Statistical measures of a large economy bear a strong resemblance to the sorites paradox. You might be able to demonstrate that a population is incrementally growing wealthier, but since a heap of wealth is always just a heap of wealth, and you don’t notice a few dollars more or a few dollars less, any more than you would notice a few grains of sand more or less on a heap of sand, it is entirely possible that even as a society grows wealthier, it might believe itself to be growing poorer, or even as a society is growing poorer, it might believe itself to be growing richer. Such counter-factual perceptions, if maintained by collective self-deception, can make an entire nation believe that it is going in the right direction when it is not, or vice versa.

Schumpeter noted that the growth of mature industrialized economies usually hovers about two percent, and although this modest two percent growth will double the size of the economy every 35 years — which is an impressive achievement if we think of the long history of stagnation of agricultural civilization — it probably isn’t enough to satisfy those who believe that they are getting a bad deal from the system. Schumpeter might have also noted that a two percent growth rate wouldn’t be noticeable from year to year, even if it is noticeable in the longer term — being noticed is different from being measurable. And if we add the difficulty of noticing two percent growth to the possibility of collective self-deception that growth is not happening, well, people may well believe that they are going backward even when the economy doubles in size every generation.

What I wrote in the above paragraph about growth also holds for economic decline: a decline of two percent per year might never be noticed year-on-year, even if it is obvious over the longer term. And if there is a collective self-deception that things are getting better, because we want to believe that things are getting better, people can easily delude themselves that the world is improving even as they are impoverishing their descendents.

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The Genealogy of Labor

3 September 2012

Monday


Michel Foucault

A Reflection for Labor Day

Foucault is perhaps most remembered for his early books, written in a very dense and at times elusive style, which constitute what have been called “critiques of historical reason.” Foucault takes up the ideas of madness, the clinic, prisons, philology, biology, political economy, and eventually (later on) sexuality, providing a staggering wealth of documentation from original source materials, even while one understands that these details are only there to serve a grand plan that is never made quite explicit. I have previously quoted the anthropologist Clifford Geertz, who characterized Foucault’s style as, “sweeping summary with eccentric detail” (cf. Foucault’s Formalism). Foucault’s effort owes much to Nietzsche’s earlier efforts to formulate what he called a genealogy of morals. Foucault said that, “Genealogy is gray, meticulous, and patiently documentary,” but for Nietzsche it was colorful, inventive, and exciting, and I think these are also qualities that made Foucault’s intellectual genealogies so interesting.

Since Foucault’s fascinating genealogies have appeared, others have taken up the task and gone on to write genealogies of all manner of historical phenomena that had, until recently, been regarded as largely unproblematic. Foucault was the next great “master of suspicion” after Nietzsche, Marx, and Freud (as identified by Paul Ricoeur), and Foucault’s influence has spawned suspicion enough to call into question every received institution of Western civilization. From this perspective, Foucault can be seen as part of a reaction against progressive Whiggish history more than as a continental embodiment of the largely Anglo-American history of ideas, to which genealogy is related, but only distantly.

I wonder if any of Foucault’s followers has written a genealogy of labor — certainly it would be a rich field of study. Foucault discussed labor in his The Order of Things, and even called one chapter of this “Labor, Life, Language,” but Foucault takes up labor from the stand point of the discourse of political economy and not from the stand point of the labor movement. I started thinking of this today when I was writing a post on my other blog about the labor movement in recognition of Labor Day, A Celebration of the American Laborer. A genealogy of labor that brought sweeping summary with eccentric detail to the gray, meticulous, and patiently documentary work of a critique of the historical reason as it underlies the labor movement would be a real achievement, and something that someone ought to take up if they haven’t already done so.

In that post I discussed my discomfiture with labor slogans and the labor movement generally speaking. I did not do justice to my chosen topic because there is so much more to say, but while I was struggling with setting limits to how far I would go in attempting to understand the social semiotics that characterize labor today, which is to say labor in industrial-technological civilization, I realized how easily this topic would play into a Foucauldian critique.

Foucault’s constant drumbeat throughout his critiques of historical reason is that the institutions of contemporary society that we have become accustomed to seeing as expressions of an emerging and growing humanitarianism are rather methodologies of control, and the professionalized discourses in which they are formulated — whether psychiatry or economics or penology — are in fact discourses of power that serve to channel privilege within a society. Although Foucault distinguished himself among philosophers of his generation by sedulously maintaining his distance from Marxism, it would be difficult to imagine a more thorough-going Marxist critique of the oppression of the masses than that formulated by Foucault.

The labor movement has been dominated, intellectually speaking, by those on the left coming from a Marxist perspective (even if, in the US, they could not for obvious socio-political reasons make their Marxism explicit), and as such one ought to expect the labor movement to be part of the critique of power relations in the industrialized world, but the labor movement has itself become a part of that industrial-technological establishment and now would rightly be subject itself to a critique for its professionalized discourse of labor relations and worker protections. The AFL-CIO campaign Work Connects Us All, which I just mentioned on my other blog, is a perfect example of this.

While the labor movement is part of the Marxist tradition as I mentioned above, it is also part of the humanist tradition. In so far as the labor movement is part of that broad social movement that seeks to humanize the institutions of industrialized society, it is vulnerable to the same critique that Foucault leveled against “humane” psychiatry, mental institutions, clinics, and prisons. Just as utopian dreams usually issue in dystopian nightmares, so too humanitarian good intentions more often than not issue in dehumanizing, depersonalizing policies. The “humane” workplace is more and more coming to resemble those other institutions, what Erving Goffman called “total institutions,” that interested Foucault.

In the attempt to make people feel involved, connected, and important by way of their labor, the labor movement must inevitably treat human beings as laborers, and it may well be that, even though the working class spends the greater part of its time engaged in alienated labor, and that this engagement necessarily has a formative influence on life and personality, workers might not want to be identified with their work or reduced to their labor. Some may even feel that this identification with a task they perform in exchange for financial compensation is an insult and slight in view of their other talents and abilities. Certainly not all, but some.

The contemporary workplace has become a regime of observation and documentation and regimentation far more encompassing than Bentham’s panoptican, which latter drew Foucault’s attention and has been a consistent point of reference for Foucault’s followers ever since (I wrote about the panopticon in A Flock of Drones). The panopticon only observed individuals at a particular moment; the regime of workplace surveillance now encompasses the life of the individual entire, from cradle to grave, and in so doing eliminates the personal life. An individual’s history before being employed may be investigated, their pictures and statements on social media examined, they will likely be tested for drugs that have nothing whatsoever to do with their performance on the job, their e-mail, web browsing, and phone calls while working may be monitored, and so long as they are employed they will continued to be monitored on the job and off the job, to whatever invasive extent sanctioned by the professionalized legal discourses constructed as a means to relieve individuals of the responsibility for their own lives. (I’m sure Freud would have had something interesting to say about the professional classes monitoring the urination of the working classes.) Of course, all of these things are done in the name of safety and order and the well-being of all — but aren’t they always?

What has the labor movement done about this unprecedented invasion of privacy? Nothing. What has the labor movement done about the extirpation of the private life? It has contributed to it, by identifying the private life with work, job, career, and professional status. The labor movement has only served to facilitate the institutionalized regimentation of worker’s lives, acting as agents for the powers that be, because they obtain their living by the same means as the owners and the managers they affect to confront.

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Creative Destruction

15 August 2012

Wednesday


Joseph Schumpeter coined the phrase ‘creative destruction’ to describe the growth of a capitalist economy.

The phrase “creative destruction” is indissolubly linked to Joseph Schumpeter, who coined it. Schumpeter devotes a chapter of his masterpiece, Capitalism, Socialism, and Democracy, to “The Process of Creative Destruction.” It has been observed that Schumpeter’s work was neglected for decades until in the late twentieth century the role of the entrepreneur in economic growth began to be appreciated.

I would argue that half of Schumpeter’s famous phrase continues to be neglected today, since the focus on entrepreneurial activity has primarily taken the form of singing the praises of innovation and the virtues of start ups, without an equal appreciation of the importance of business failure, bankruptcy, and economic collapse, despite the very prominent role that all of these phenomena have in the world today. It has been said that capitalism without bankruptcy is like Christianity with Hell, and this comparison is telling, more telling than I think most people realize, because the doctrine of Hell is about as unpopular as the idea of bankruptcy.

What events in recent world history have been more important than, for example, the economic collapse of the Soviet Union, the dot com crash, the bankruptcy of Enron, or the bankruptcies of Lehman Brothers and Bear Stearns? There have been many events of roughly equal importance to these massive examples of the “destructive” phase of “creative destruction,” creative examples among these, but it would be difficult to name obviously more important events that these for shaping the world in which we live.

I think it is probably a little exhilarating for business types and economists to talk about the virtues of innovation, but the exclusive focus on innovation creates a kind of conceptual vacuum around its opposite number, but we are in as much need to innovative forms of business dissolution as for business innovation. The recent financial crisis and the consequent “great recession” (as it is now being called) focused a lot of attention on enterprises that were perceived to be “too big to fail.” That is to say, if very large institutions were allowed to fail catastrophically, the damage throughout the economy could be greater than that of keeping a failing business afloat. “Too big to fail” talk was also a constant accompaniment of many national crises, like that in Greece now, or the Argentine debt default more than ten years ago. I can easily imagine, in this spirit, someone arguing that the Soviet Union was “too big to fail.” In fact, I am certain that there are those who are argued that an engineered “soft landing” for the Soviet Union might have come at a lower human cost than that more or less catastrophic failure that the Soviet Union did indeed experience.

It is just as important for us to rid ourselves of what we no longer need as to innovate new products that are suddenly the thing that everyone needs. In my discussion of technological succession I emphasized that apparently exponential technological growth is often the result of several overlapping technologies succeeding each other in quick succession. This has certainly been the case with personal computers, as one generation of technology has rapidly succeeded another, and people have thrown out one computer after another as technology advances so quickly that the old computers are not merely inconvenient, but essentially useless.

There have been many news stories about computer waste, so if an individual wants to be informed about the process, the information is there for the taking. I recommend, rather than reading some news stories, watching the film Manufactured Landscapes, about the work of photographer Edward Burtynsky, in which you can see the painstaking work in a Chinese village of breaking up old computer parts, as well as the much larger scale but essentially parallel task of the ship breaking yards of Bangladesh.

It isn’t just individual objects like computers and ships that must be destroyed, or simply abandoned and allowed to sink into the landscape. In my post on Failed Cities I suggested that the process applies to entire cities as well:

“…industrial succession is part of the Industrial Revolution, and that the civilization that has emerged from industrialized societies is a civilization that must reckon with the industrial succession that comes with the Industrial Revolution. The rational approach to this would be to plan for cities to emerge around particular technologies, and for these same cities to be abandoned gradually as that same technology inevitably becomes obsolete.”

Ideally, the rational approach to obviously temporary supply chains would to build the facilities with the intention that they will be taken down and taken apart when this particular industrial process is succeeded by another industrial process. Unfortunately, civilization has not yet reached the point at which this level of planning and foresight can be integrated into large scale business operations.

In another sense, however, cities do in fact embody this idea — cities actually embody creative destruction — in the way that the build environment on the whole is always in flux. The same film I mentioned above in connection with computer waste disposal, Manufactured Landscapes, also features the ever-changing urban landscape of Shanghai.

Cities that have been continuously inhabited for long periods of time are inevitably built up and built over, sometimes intentionally destroyed no longer useful structures, and sometimes having existing structures destroyed by war or natural disasters. This is what makes cities so fascinating to archaeologists, since anywhere you dig is likely to reveal the history of the site in the layers below ground.

The city, then, considered from the perspective of the big picture and la longue durée, are or ought to be the model for the economy overall, which suggests that cities are the macroscopic model of rebuilding that needs to be realized on a microscopic level throughout the economy. We need an urbanism of objects to take control of our economic innovation and dissolution. Perhaps most macro-economic planning has been a failure in part due to the fact that it has not been conceived in this way.

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Thursday


What does it mean to be a socialist in the 21st century, in the wake of a century of failed socialist and communist social experiments? We have already seen the use of the phrase “21st century socialism,” particularly in the work of Heinz Dieterich Steffen, who has been influential in Latin America. Dieterich has been a professor at the Universidad Autónoma Metropolitana in Mexico, D.F. since 1977; I first heard about him when I was in Ecuador in 2009. Dieterich has been closely associated with the left-leaning governments of Venezuela and Bolivia.

Partly under Dieterich’s influence, and partly simply using his slogan of socialism of the 21st century, Venezuela, Bolivia, and to a lesser extent Ecuador engaged in a so-called Bolivarian Revolution. But the Bolivarian Revolution has fizzled. Recently there was a good critique of the movement in Foreign Policy magazine, The Bolivarian Legacy by Douglas Farah, subtitled, “Hugo Chávez and his leftist allies will leave little behind other than failed economic policies, massive corruption, and shrinking political freedoms,” which pretty much sums up the author’s conclusions. I would have framed it even more strongly. There is absolutely nothing whatsoever “new” or “revolutionary” or “twenty-first century” about caudillo-style politics masked by claims to represent “the people.”

So much for twenty-first century socialism in Latin America. Now it seems that we are to find out want twenty-first century socialism means in France under the new president François Hollande. This, I think, will be rather more effective and more of a movement to reckon with, than the tendentious ideological formulations of Heinz Dieterich. Hollande is a career politician, and he will act as a politician, which is to say he will rule by policy, in the context of his party, and employing the institutional structures of the French government, which has been a strongly centralized state since the Sun King turned France into an Enlightenment superpower united under absolute monarchy. This is more about institutions than it is about personalities. By all accounts, Sarkozy was much more of a “personality” than Hollande.

The Financial Times ran two stories in today’s paper, Wealthy hit hardest as France raises taxes by Hugh Carnegy in Paris, and France: Ready to jump ship by Hugh Carnegy and Scheherazade Daneshkhu, both detailing French plans to dramatically raise taxes and to place salary caps on executives.

These policies will have a strong selective effect. Some wealthy people will leave France and take their businesses with them — perhaps many will do so. David Cameron has already promised to welcome French “tax exiles” to the UK:

“If the French go ahead with a 75% top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else.”

Thus France will lose some of its wealthiest citizens, some of its businesses, probably some international investment, and it will likely decline in growth, productivity, and competitiveness. If you want to start a dynamic new business in Europe, and believe that it may come to be worth a lot of money, you certainly won’t try to start that business in France.

That being said, is this policy necessarily ruinous for France? The answer to this depends upon how you define “ruinous.” I have no doubt that there are many who will characterize the developments in France as ruinous, or something similar, but it is to be observed that Hollande is not trying to foment a social revolution, he isn’t proposing the European equivalent of a Bolivarian Revolution, and he isn’t laying plans for mass nationalizations and confiscations, although the tax levels are already being called “confiscatory.”

I would not be at all surprised to see France settle into a comfortable if stagnant and ever-so-genteel decline — a decline that may be as comfortable to the majority of French citizens as Japan’s “lost decade” was to a majority of Japanese. Japan was and is a very wealthy country. It no longer aspires to great power status, and so its people could be relatively comfortable even in the midst of extended stagnation. Similar observations hold for France: France was and is a wealthy country; it no longer aspires to great power status, and so its people could be relatively comfortable even in the midst of extended stagnation. Moreover, mass sentiment in France may well be on the side of an economic leveling that will eliminate France as a major global economic competitor, but will nevertheless confirm the people in their moral rectitude; and in feeling that they are in the right, the people may be more satisfied with this moral stance than they would be with higher economic growth rates, especially if part of the growth rate is eaten up by executive salaries and shareholder dividends.

What I am saying is that Hollande’s variety of socialism may well be sustainable, especially in France, and perhaps also elsewhere in Europe. France could become a place that is perhaps not very economically vibrant, but one where the needs of the people are met with a reasonable degree of comfort (rather better than the comfort provided by the socialist economies of Eastern Europe behind the Iron Curtain), where freedoms and human rights are respected (rather more respected, again, than behind the Iron Curtain), and where the gap between the poorest and the wealthiest is systematically narrowed by legislation.

A sufficient number of “true believers” in the cause of France will remain in France to keep the major enterprises functioning, even if they could earn many times more if they went elsewhere. As I noted above, Hollande’s policies will be strongly selective. Those for whom wealth is of paramount importance will choose to leave; those for whom France, and being French in France, is of paramount importance, will choose to stay. From this selective process, France may gain in French nationalism even as it declines in economic competitiveness. A socialist France cannot expect to be a global economic competitor, but if it can keep the lights on and the people fed, this may be more important to the French masses than improving standards of living.

It has become an almost irritatingly repetitive commonplace that mathematicized economics cannot account for all the forces and complexity of an economy. I do not deny that this is true. A mathematical model is always a simplification that derives its predictive power precisely from being simpler than reality. There is no point is constructing a model that is a duplicate of the phenomenon to be modeled; the map, as we all know, is not the territory. Usually when this “criticism” of economics is made it has a strong moral slant to it, but surprisingly the criticism often misses some of the most important moral truths of economic life: that sometimes people will prefer to be poor and proud rather than to be slightly wealthier but at a moral cost they are unwilling to pay.

This is one formulation of socialism — trading moral rewards for economic rewards — though not one the socialists are likely to endorse. The tradition of socialist and communist thought is so steeped in absurd fantasies of maximized abundance in which, “each man’s share of labour would be light, and his portion of leisure ample” (in the words of Malthus), that it is all but impossible to get them to see that they are trading wealth for moral rectitude. And if that is what people want, that is what they will get.

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Tuesday


Mario Monti said of the Euro that, “the will to make it indissoluble and irrevocable is there.” Today, perhaps yes, but what will the will be tomorrow?

Each time the Eurozone puts together another bailout package the markets follow with a brief (sometimes very brief) rally, which collapses pretty much as soon as reality reasserts itself and it becomes obvious that most of the measures constitute creative ways of kicking the can down the road, while those more ambitious measures that are more than kicking the can down the road are probably overly ambitious and not likely to be practical policies in the midst of a financial crisis.

Simply from a practical point of view, it is difficult to imagine how anyone can believe that a more comprehensive fiscal and political union can be brought about in the midst of the crisis, although formulated with the best intentions of saving the Eurozone, since the original (and much more limited) Eurozone was negotiated, planned, and implemented over a period of many years, not over a period of few days as inter-bank loan rates are climbing by the hour. Apart from this practical problem, there are several issues of principle at stake in the Eurozone crisis and the attempts to rescue the European Monetary Union.

Mario Monti was quoted in a Reuter’s article, Monti says EU hinges on summit talks outcome: report, in defense of strengthening financial and political ties within the Eurozone as a way to save that Euro that:

“Europeans know where they’re going… the markets are convinced that having given birth to the euro, the will to make it indissoluble and irrevocable is there and will be strengthened by other steps towards integration.”

Can the Euro be made “indissoluble and irrevocable”? Can anything be made indissoluble and irrevocable? I think not, and this is a matter of principle to which I attach great importance.

I have several times quoted Edward Gibbon on the impossibility of present legislators binding the acts of future legislators:

“In earthly affairs, it is not easy to conceive how an assembly equal of legislators can bind their successors invested with powers equal to their own.”

Edward Gibbon, History of the Decline and Fall of the Roman Empire, Vol. VI, Chapter LXVI, “Union Of The Greek And Latin Churches.–Part III.

Since I have quoted this several times (in The Imperative of Regime Survival, The Institution of Language, and The Chilean Model, e.g.), implicitly maintaining that it states an important principle, I am now going give this principle a name: Gibbon’s Principle of Inalienable Autonomy for Political Entities, or, more briefly, Gibbon’s Principle.

As I have tried to make explicit, Gibbon’s Principle holds for political entities, but I have also quoted a passage from Sartre that presents essentially the same idea for individuals rather than for political entities:

“I cannot count upon men whom I do not know, I cannot base my confidence upon human goodness or upon man’s interest in the good of society, seeing that man is free and that there is no human nature which I can take as foundational. I do not know where the Russian revolution will lead. I can admire it and take it as an example in so far as it is evident, today, that the proletariat plays a part in Russia which it has attained in no other nation. But I cannot affirm that this will necessarily lead to the triumph of the proletariat: I must confine myself to what I can see. Nor can I be sure that comrades-in-arms will take up my work after my death and carry it to the maximum perfection, seeing that those men are free agents and will freely decide, tomorrow, what man is then to be. Tomorrow, after my death, some men may decide to establish Fascism, and the others may be so cowardly or so slack as to let them do so. If so, Fascism will then be the truth of man, and so much the worse for us. In reality, things will be such as men have decided they shall be. Does that mean that I should abandon myself to quietism? No. First I ought to commit myself and then act my commitment, according to the time-honoured formula that “one need not hope in order to undertake one’s work.” Nor does this mean that I should not belong to a party, but only that I should be without illusion and that I should do what I can. For instance, if I ask myself ‘Will the social ideal as such, ever become a reality?’ I cannot tell, I only know that whatever may be in my power to make it so, I shall do; beyond that, I can count upon nothing.”

Jean-Paul Sartre, “Existentialism is a Humanism” (lecture from 1946, translated by Philip Mairet)

This I will now also name with a principle: Sartre’s Principle of Inalienable Autonomy for Individuals, or, more briefly, Sartre’s Principle.

If that weren’t already enough principles for today, I going to formulate another principle, and although this is my own I’m not going to name it after myself after the fashion of the names I’ve given to Gibbon’s Principle or Sartre’s Principle. This additional principle is The Principle of the Political Primacy of the Individual (admittedly awkward — I will try to think of a better name for this): political autonomy is predicated upon individual autonomy. In other words, Gibbon’s Principle carries the force that it does because of Sartre’s Principle, and this makes Sartre’s Principle the more fundamental.

At present I am not going to argue for The Principle of the Political Primacy of the Individual, but I will simply assume that Gibbon’s Principle supervenes upon Sartre’s Principle, but I wanted to make clear that I understand that there are those who would reject this principle, and that there are arguments on both sides of the question. There is no establish literature on this principle so far as I know, as I am not aware that anyone has previously formulated it in an explicit form, but I can easily imagine arguments taken from classic sources that bear on both sides of the principle (i.e., its affirmation or its denial).

Because, as Sartre said, “men are free agents and will freely decide,” the Euro cannot be made “indissoluble and irrevocable” and the attempt to try to make it seem so is pure folly. For in order to maintain this appearance, we must be dishonest with ourselves; we must make claims and assertions that we know to be false. This cannot be a robust foundation for any political effort. If, tomorrow, a deeper economic and political union of the Eurozone becomes of the truth of Europe, this does not mean that the day after tomorrow that this will remain the truth of Europe.

And this brings us to yet another principle, and this principle is a negative formulation of a principle that I have formulated in the past, the principle of historical viability. According to the principle of historical viability, an existent must change as the world changes or it will be eliminated from history. This means that entities that remain in existence must be so malleable that they can change in their essence, for if they fail to change, they experience adverse selection.

A negative formulation of the principle of historical viability might be called the principle of historical calamity: any existent so constituted that it cannot change is doomed to extinction, and sooner rather than later. In other words, any effort that is made to make the Euro “indissoluble and irrevocable” not only will fail to make the Euro indissoluble and irrevocable, but will in fact make the Euro all the more vulnerable to historical forces that would destroy it.

When I previously discussed Gibbon’s Principle and Sartre’s Principle (before I had named these principles as such) in The Imperative of Regime Survival, I cited an effort in Cuba to incorporate Castro’s vision of Cuba’s socio-economic system into the constitution as a permanent feature of the government of Cuba that would presumably hold until the end of time. This would be laughable were it not the source of so much human suffering and misery.

Well, the Europeans aren’t imposing any misery on themselves on the level of that which has been imposed upon the Cuban people by their elites, but the folly in each class of elites is essentially the same: the belief that those in power today, at the present moment, are in a privileged position to dictate the only correct institutional model for all time and eternity. In other words, the End of History has arrived.

Why not make the Euro an open, flexible, and malleable institution that can respond to political, social, economic, and demographic changes? Sir Karl Popper famously wrote about The Open Society and its Enemies — ought not an open society to have open institutions? And would not open institutions be those that are formulated with an eye toward the continuous evolution in the light of further and future experience?

To deny Gibbon’s Principle and Sartre’s Principle is to count oneself among the enemies of open societies and open institutions.

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Grand Strategy Annex

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Monday


Last week it was reported that Cristina Fernández de Kirchner would convert her savings from dollars to pesos, and urged her ministers to do likewise in order to provide an example and to give a concrete demonstration of faith in the Argentinian currency — and, by extension, the economy of Argentina (cf. Argentina’s President Fernandez stops saving in dollars). Then the Financial Times published Dollar curbs squeeze Argentine economy by Jude Webber in Buenos Aires. What’s going on with Argentina and dollars?

What’s going on is an illustration of Gresham’s law, commonly stated as “bad money drives out good money” (and also known as the “Copernicus-Gresham Law” because it was earlier formulated by Copernicus). While one often thinks of “bad” money as debased coinage, in cases of de facto currency pluralism, when more than one form of legal tender is employed in economic transactions, the distinct forms of currency might individually gain a reputation as “good” or “bad.” Argentine pesos are losing their value at an official inflation rate of almost 10 percent, but at an unofficial rate that may be several times higher. As a result, Argentina has been experiencing substantial capital flight as people look for safe places to put their money. In response to capital flight, the government has attempted to crack down with regulations on buying dollars.

The limitations placed on dollars is having an effect in the wider economy because, as the FT article cited above explains, real estate prices in Argentina are denominated in dollars. In other words, with big ticket items you have to come up with dollars because people don’t trust pesos when a lot of money is on the line. The FT article said, “Consequently the property market is paralysed, with a knock-on effect on construction.”

Another way to express the denomination of real estate transactions in dollars would be to say that the real estate market in Argentina has been dollarized — a de facto dollarization, to be sure, but still a dollarization. And with a substantial portion of the economy dollarized, but with the greater part of the economy still denominated in pesos, Argentina has de facto currency pluralism.

At present the situation is a mildly tense standoff between a people and its government; the people are trying to secure as much of their savings as they can, while the government is trying to clamp down on strategies of securing savings that exports them from the country or transforms them into dollars. Maybe it would be better to call this a cat-and-mouse game than a standoff. But the worry here is that a tipping point will be reached and instead of a slow-motion sequestering of good money, there will be a sudden loss of confidence that generates a run on the banks. People in Argentina know what it is like to go to the bank and not be able to withdraw their money, so they are with drawing it now and either sending it abroad or buying something with it that is relatively immune to inflation, financial panic, and economic collapse.

As I have said in many posts in the past, this kind of situation is potentially devastating to the middle class. The poor have no savings and live from day to day; the rich already have most of their money invested elsewhere in the world in financial instruments not directly connected to their country of origin. It is the middle class that has a little bit of money in the bank — saved for a home, saved to start a business, saved for an education, or what have you — that suddenly becomes unavailable in the financial panic, and in the aftermath of the panic may be devalued to some tiny portion of its former value. Again, it is the middle class who do not have the connections or the knowledge or the financial savvy and expertise to shelter their modest savings that are most at risk. And they know it.

Argentina’s economy is large, and therefore diverse and robust, but the level of mismanagement that is the case at present leaves one wondering how long the game of musical chairs can go one before the music stops. The recent re-nationalization of YPF is only a symbol of a much more pervasive government intervention in markets that is not serving the people of Argentina (though the move to re-nationalize YPF was widely popular — I have my Twitter account set to tell me what is “trending” in Argentina, and in the wake of the re-nationalization there were several trending topics related to YPF, all of them favorable to the re-nationalization). The economy is now hemmed in by restrictions and regulations that are choking off trade.

Argentina is turning its back on globalization both by regulations that are hampering international trade and by essentially opting out of global financial markets by failing to address the long term structural issues that led to its default. The FT article cited above quoted Martín Redrado (former governor of the Argentine central bank who was tossed out by Cristina Fernández) as follows:

“Argentina is not part of the international financial community so cannot access international credit markets and does not have [large] portfolio flows or investment flows. The trade surplus, which is decreasing, is the only source of dollars.”

It sounds a bit strange to say it, but what we have here is Juche South American style — an attempt to be economically self-sufficient which sounds good rhetorically but runs counter to everything we know about economics. Trade benefits everyone involved. That’s why people trade. If they did not see it in their interest to trade, they would not trade. The Argentine government is painting itself into a corner where its only remaining economic strategy is to keep ratcheting up the same regulations that are choking the life out of the economy.

Of course, there is always the possibility of reversing that strategy and deconstructing the artificial barriers to trade that choke economic growth, but when a government is politically and ideologically tied to a particular strategic economic policy, reversing that policy can create a lack of political confidence that is parallel to the lack of economic confidence that causes bank runs.

The de facto dollarization of some sectors of the Argentine economy puts definite limits on the extent to which the government can ratchet up further restrictions on the use of dollars, but as long as dollars are in use, the “good” dollars will be hoarded while the “bad” pesos will be used in exchange, in line with Gresham’s law. At the same time, a flourishing black market in dollars required for certain transactions (like real estate), with dollars trading at a premium well above the official exchange rate, fosters a sense of cynicism and a contempt for rule of law. When institutions force individuals into crime and dishonesty simply in order to go about the daily business of life (like buying a house), it is difficult to have any really genuine faith in these institutions.

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Grand Strategy Annex

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Friday


Mining is the paradigmatic resource-extraction industry. For the miners themselves, mining has always been dirty, dangerous, and difficult. Technological improvements have made mining slightly less dangerous than it was, but it is still a dangerous activity, as even today miners continue to be trapped underground in mining accidents that capture the world’s attention. Technology has also allowed mining to become a Brobdingnagian industry, scaled up to a seemingly inhuman enormity, leveling entire mountains and permanently altering landscapes.

Mining has often been the only industry to operate in relatively isolated areas — one must mine where the resources are, which means creating an industrial infrastructure in the middle of the wilderness, hiring locals as miners who may have never before worked in any industrial occupation, and transporting the extracted minerals to distant markets, which also means a transportation network. I tried to make this point in my post on Appalachia and American Civilization, where I wrote:

When the Industrial Revolution came to Appalachia, it came in the form of mining. The furnaces of the Industrial Revolution needed coal, and coal was there to be mined. So while earlier industries bypassed isolated Appalachia, the need for coal drove the industrial development of the region. And after a long history of poverty, the mining jobs were welcome.

What was true of isolated Appalachia has been true to many isolated regions of the world that have been discovered to possess mineral wealth. To all these regions, the Industrial Revolution arrived in the form of mining. Of Appalachian mining I also wrote:

Industrial scale mining requires a major capital investment, and this guaranteed that the industries involved in developing coal mining in the region would be very large companies with major capital resources. And the nature of mining guaranteed that the labor involved is difficult and dangerous in the extreme. Miners live an unenviable life. The harshness of the life of the average miner and the capital required by an industry to develop large scale coal mining virtually guaranteed a profound disconnect between management and labor in Appalachia’s coal mining industry.

The relative isolation of many mineral rich regions has meant that there was little in the way of local capital available to develop the resource extraction industries that could be supported by the minerals; this in turn means that the capital and the expertise must come from outside. When the investment and the expertise all comes from outside, that leaves only the most menial and difficult jobs for the local labor force, which, before the arrival of the mining industry, may never have been employed in any industrial occupation, never have punched a time clock, never have worked for wage labor, and never before have seen what industrialized civilization looks like.

In other words, the typical worker that gets recruited to be a miner goes more-or-less directly from subsistence farming in an agriculturally marginal area, probably will little or no formal education, into industrial wage labor. For these individuals, the industrial revolution is experienced personally as a personal revolution (a micro-temporal revolution). This change is so radical (and in most societies is played out over decades or more) one cannot be surprised that those who experience this radical change are themselves radicalized. The workers are first radicalized by their work, in so far as the change from isolated subsistence agriculturalism to industrialization constitutes a radical change in way of life; an individual open to one radical change is likely to be open to another radical change, and another after that. This is one course (inter alia) of political instability.

The Spanish treasure fleet was filled with silver from Potosí, brought overland to the Panamanian port of Nombre de Dios by mule train.

This process of radicalization through radical change in life — social change experienced directly as personal change — has a long history in Andean South America, and it began in Potosí, where the Spanish found a mountain literally made of silver. The system of colonial overlords overseeing vast numbers of peasant laborers — the model of development that the Spanish imposed throughout Spanish America — was iterated on an industrial scale in Potosí. The city is now a UNESCO Heritage site, which the organization describes as follows:

“Potosí is the one example par excellence of a major silver mine in modern times. The city and the region conserve spectacular traces of this activity: the industrial infrastructure comprised 22 lagunas or reservoirs, from which a forced flow of water produce the hydraulic power to activate the 140 ingenios or mills to grind silver ore. The ground ore was then amalgamated with mercury in refractory earthen kilns called huayras or guayras. It was then moulded into bars and stamped with the mark of the Royal Mint. From the mine to the Royal Mint, the whole production chain is conserved, along with dams, aqueducts, milling centres and kilns. Production continued until the 18th century, slowing down only after the country’s independence in 1825.”

It was primarily the silver from Potosí that filled the Spanish treasure ships that each year brought the wealth of the New World to the Old World, and it was the same massive influx of silver into the Spanish economy that caused one of the first ruinous episodes of hyperinflation in human history, more or less marginalizing the Spanish economy in Europe until the twentieth century.

An illustration of Potosi from 1553, already famous for its silver mines.

Potosí is in what is now Bolivia, and Bolivia continues to have a remarkable history of miner-led strikes and social struggles. Moreover, since miners have access to dynamite, these struggles often become violent and deadly. One revolt by Bolivian miners has been called a revolution (cf. 60 years since the 1952 Bolivian revolution), and the Federación Sindical de Trabajadores Mineros de Bolivia (FSTMB) continues to be a force in Bolivian politics (cf., e.g., Bolivian miners reject foreign investors).

A famous photograph from the 1952 Bolivian revolution led by miners.

Before the miner-led 1952 revolution, radical leaders of the FSTMB in 1946 formulated the “Pulacayo Theses” (“Las Tesis de Pulacayo”), which is a remarkable document by any measure — radical in conception, sweeping in scope, and detailed in its provisions. The third of these theses is this:

Bolivia pese ha ser país atrasado sólo es un eslabón de la cadena capitalista mundial. Las particularidades nacionales representan en sí una combinación de los rasgos fundamentales de la economía mundial.

Bolivia despite being backward country has only one link in the global capitalist chain. National peculiarities represent an original combination of the fundamental features of the global economy.

This is precisely the point I have tried to make, and which is implicit in my book Political Economy of Globalization: resource extraction industries, and particularly those that visit upon their host countries the “resource curse,” are not the outgrowth of broadly-based economic development. In the words of the Pulacayo Theses, such extraction points are linked to the global economy at only one point. This is a fragile link to the main body of industrial-technological civilization, and a vulnerable link.

Many strikes by miners, not only in Bolivia but all over the world, have been epic in proportion, dragging on for years and involving thousands (even in the heart of the industrialized world, as in the UK miners’ strike of 1984–1985). Some of these strikes have been more like miniature civil wars than industrial actions. Recently Peru has seen violent and deadly conflicts over mining (c.f., Peru anti-mining protest leader arrested near Cusco). In Peru, as in Bolivia, mining is big business. It is, in fact, again like Bolivia, the most obvious way in which the global economy is connected to Peru.

Peru is the second largest producer of copper in the world and the sixth largest producer of gold. Global mining companies have invested billions in the extraction of these minerals, and are set to invest more. The Peruvian economy is among the most dynamically growing in Latin America at present, and it seems set to join Brazil and Chile as a stable democratic nation-state in which the quality of lives of the citizens gradually yet predictably improves. This is something like a miracle if we recall the state of affairs in Peru during the worst of the Sendero Luminoso years (though the group is still in existence and even regularly updates a website — and there is also the “Committee to Support the Revolution in Peru” based in well-heeled Berkeley, California).

Mining is a crucial component of the economic and industrial growth of Peru. Multinationals Xstrata and Newmont have enormous operations in the country, as does the Peruvian industrial concern Buenaventura. Newmont is considering an investment of nearly five billion USD in a copper and gold mining project. But as the investment grows and the industry grows, the tension grows with it. Whether or not the institutions of Peruvian society are now strong enough to contain these tensions and channel them constructively into political activity is yet to be see. It will not be easy.

Of course, Peru is not Bolivia, and vice versa. Bolivia never experienced anything like the level of violence and brutality of the Sendero Luminoso campaign in Peru, and Peru has not experienced the level of political instability that has characterized Bolivia’s history. Peru’s capital, Lima, was the City of Kings, and the center of Spanish administration in the New World. In contrast, even though Potosí was the source of legendary wealth, and once the largest city in the Western Hemisphere because of the silver mining, it was always on the periphery politically. Thus in Spanish America, Peru was related to Bolivia as center to periphery.

Nevertheless, there is something to be learned, and learning here is the crucial term. The resource extraction industries have made the same egregious mistakes with such predictable regularity, and resulting in the same predictable regularity of popular action in opposition, that I suspect that all parties to this wearisome political cycle are guilty of a near total absence of creative thinking on the problem. In circumstances like this, it can honestly be said that we need a revolution — but a revolution in the way of doing business, including the ordinary business of life.

Something needs to be done about the shallow industrial base of those places in the world where the global economy has a footprint of a single point. Local capital and local expertise need to join local labor, or the effort is manifestly unsustainable.

Local communities need to adjust their expectations and their way of life just as much as businesses need to adjust their way of doing business. Even if the way of life has not changed in thousands of years, it is changing now, and whether it is minerals or tourists or something else, the old ways are being crowded out as industrial-technological civilization continues its relentless expansion. Modernization isn’t just a good idea, it is the only way the these traditional communities will survive — admittedly, at some cost to tradition, but when the alternative is annihilation and extinction, change would seem to be preferable.

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Grand Strategy Annex

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Thursday


It continues to be a fascinating exercise to read the Financial Times each day to see the ongoing machinations and maneuvering around the fate and future of the Eurozone currency union. Some say it will be held together; others say Greece and a few others will leave the currency union and things will be fine; there are a few who insist that a Greek exit means that the currency union will collapse altogether. I have myself added to this lengthy debate with several posts, such as What would a rump Eurozone look like? and The Economic Future of Europe.


Euro area Member States
Non-euro area Member States
Member States with an opt-out

I have suggested that with the departure of marginal economies (nation-states that never were peer-competitors to the core Eurozone economies) will leave the Euro stronger than before, and with prospects for a distant futurity. The proof of this is that, while the Euro is down on international currency markets, it has not been aggressively bid down in a scenario such as would be the case if currency traders expected the Euro to be circling the drain. In comparison to other major world currencies, the Euro remains today in a stronger position than when it was first issued.


Which countries have adopted the euro - and when?


However, some of the recent arguments I have read suggesting that the Eurozone cannot continue to exist in its current form post-Greek departure have in them a hard kernel of truth. Some of this is semantics: if we say that the Euro cannot continue in its current form, all we are saying is that it could continue in an altered form. Read a little deeper in the context, though, and it becomes apparent that there rather more pessimism about the Euro than is captured by a mere semantic shift from the Euro based in the current Eurozone and a Euro based in a Eurozone minus Greece, Portugal, Spain, Italy, and Ireland.

One of the reasons that the Euro is not being aggressively bid down on international currency markets is that the core Eurozone economies have strong fundamentals, and these fundamentals are not going to disappear in a puff of smoke even if the Euro evaporates. Germany and France will continue to do business in some currency or other, and while their economies would take a major hit from the demise of the currency union, their fundamentals will ensure that they will recover and eventually resume economic expansion.

What I would like to suggest is that the Eurozone adopt a policy of economic shock therapy and take the bad news all at once, on the principle that a ratcheting downward of the Eurozone would create economic chaos and uncertainly each time a nation-state departed the currency union (a consequence of European leaders’ failure to see far enough down the road to make institutional provisions for both entry into and exit from the Eurozone). Europe could conceivably perpetuate the crisis of the Eurozone for a decade if marginal member nation-states fell away once every year or two. This would be a worst-case scenario that would set back the whole of the European economy for more than a decade as ongoing adjustments are made in the wake of further departures.

However, such a radical shock therapy need not mean the abandonment of some kind of currency union in Europe. I have suggested previously that the nation-states of Northern Europe that are on a more-or-less equal economic footing, and with more-or-less comparable social institutions and expectations, can work together well within a currency union in which tough economic standards are expected, enforced, and adhered to. Such a currency union of Northern Europe would roughly correspond to the extent of the Hanseatic League, which was a medieval trading group that flourish in the later middle ages and the early modern period — an international trading corporation before there was any such legal entity as a corporation or any such political entity as a nation-state (and therefore no sense of “internationalism” as we think of it today).

The Extent of the Hanseatic League in the late Middle Ages and Early Modern period.

A currency union in Northern Europe that roughly approximated the geographical region that once comprised the Hanseatic League would, I think, not only be sustainable, but would be a benefit to its members in the same way that being part of the Hanseatic League was a benefit to these late medieval and early modern merchants with their trading depots around the Baltic Sea. Rather than being dragged backward by non-compliant members, a union of economic peers would serve to pull each other forward. Strong provisions in any treaty governing such a union could ensure this not only by having a clearly defined legal process for departure from the union, but also, and as importantly, a clearly defined legal process to eject non-compliant members from the union.

In the map of Europe that I have colored below I have identified in a bright (Euro!) blue those nation-states that could probably cooperate in a strong Northern European currency union. This union could be “strong” in terms of its exclusivity and its willingness to exclude members that failed to maintain acceptable macro-economic targets. Membership would be a privilege, not a right; in the initial enthusiasm for the Euro, the sense of exclusivity was lost, which sentiment standing in for enforceable macro-economic standards. This Northern European currency union could be called, in deference to history, the Hansazone, and the currency could be called the “Hansa.” If the Swedes and the English could be persuaded to join too, all the better. This would work; the Eurozone as it is now constituted does not work.

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A “Hansazone” for a currency union in Northern Europe.

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Grand Strategy Annex

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Monday


OK. So the G-8 summit at Camp David has concluded with an official communique, a declaration laying out the agenda of member nation-states, with the top agenda item (nos. 2 through 9) being “The Global Economy.” There is scarcely a word in the document that is not hedged. Even in the title to this section we have an equivocation, since by “the global economy” the G-8 really means their concerns about the Eurozone — whether Greece will leave the currency union, what follow-on contagion effects such a Greek departure might have, whether there will be a run on European banks, how much the Eurozone economies will contract as a result of the financial crisis, and whether market pressures will also force Portugal, Spain, Ireland, and possibly even Italy out of the Eurozone.

The G-8 declaration talks the talk of growth. Indeed, it talks a lot about growth. The word “growth” appears ten times in sections 2 through 9. The G-8 has even seen fit to include such dispensably obvious nostrums as, “Our imperative is to promote growth and jobs.” If you have to say it, you’re probably already in trouble. And in fact we know that the Eurozone already is in trouble. The bill has come due for 67 years of welfare state largesse, which means that two or three generations of Europeans have been raised up in the belief that they are entitled to a cradle-to-grave social support network, regardless of consequences or conditions.

Here are some further unsurprising declarations from the G-8 declaration:

“…we commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us.”

“We welcome the ongoing discussion in Europe on how to generate growth, while maintaining a firm commitment to implement fiscal consolidation to be assessed on a structural basis.”

“We all have an interest in the success of specific measures to strengthen the resilience of the Eurozone and growth in Europe.”

There is a sense in which it is almost comical to engage in public rhetoric of growth while the Eurozone economies are shrinking because of the financial crisis and the greatest worry is stopping a run on the banks, but if it is comical it is black humor and no laughing matter.

What exactly does “growth” mean in this artfully vague declaration by the G-8? “Walking the walk” of growth might mean Keynesian-style financial stimulus, in which governments would undertake to spend money (perhaps on “shovel-ready” projects) in order to “kick-start” the economy by the influx of money, jobs, and economic activity. It might even mean the economically largest nation-states in the Eurozone — Germany and France — using their money for economic stimulus in Greece, Portugal, Ireland, Spain, and Italy. And how long would such a practice be expected to continue? Once you begin spending German money on Greek construction projects, where does it end? More likely, the talk of growth means Eurobonds mutually issued and mutually backed, with the proceeds ploughed into the ailing economies. These aren’t really “growth” measures; they are firewalls to contain a crisis, but they must be said to be about “growth” because the public does not want to hear about austerity.

Does anyone believe that this is really going to happen? The Eurobonds might happen, but the longer the crisis goes unresolved, the more those Eurozone nation-states with something to lose will hesitate to throw good money after bad. And since there is a tendency to kick the can down the road rather than to take decisive action, things can easily go from bad to worse, making it look like marginal Eurozone members are clearly not worth saving, and even more clearly not worth sacrifices on the part of another nation-states and their peoples.

So what is really going on here? Under pressure from vacuous protests from people who are angry but have no ideas that will move the debate forward, no constructive policy prescriptions, and no agenda beyond an economic cri de cœur, the heads of state of the largest and wealthiest nation-states in the world today have issued a vacuous declaration. This is, in short, a feel-good measure — tit-for-tat vacuity.

However, dangerous illusions are perpetrated by vacuous protests and vacuous declarations intended to mollify vacuous protests: the idea that government declarations can create jobs or grow the economy, the idea that government services can expand while tax revenues fall, the idea that no one need suffer in an economic downturn, the idea that someone or some institution is to blame for the business cycle, and that by punishing the malefactors that the body politic can be made whole again. This is not an exhaustive list.

The most obvious and most dangerous illusion is that talk can substitute for action. There is a very old phrase for those who will not be honest about their public pronouncements: crying wolf. What happens when you cry wolf too many times? No one pays attention when there really is a wolf at the door.

If you prefer a Biblical reference to a fairy tale, I can cite Jeremiah 6:14, where the prophet says, “They have healed also the hurt of the daughter of my people slightly, saying, Peace, peace; when there is no peace.” Our politicians today say growth, growth when there is no growth, and there is no prophet who is apparently willing to speak truth to power in this respect, despite the superficial currency of that slogan (i.e., “speaking truth to power”).

Finally, if you prefer classical antiquity to fairy tales or Bible prophets, I can cite the famous passage from Thucydides about corruption of language that came from radicalization during the Peloponnesian War:

“Words had to change their ordinary meaning and to take that which was now given them. Reckless audacity came to be considered the courage of a loyal ally; prudent hesitation, specious cowardice; moderation was held to be a cloak for unmanliness; ability to see all sides of a question, inaptness to act on any. Frantic violence became the attribute of manliness; cautious plotting, a justifiable means of self-defence. The advocate of extreme measures was always trustworthy; his opponent a man to be suspected.”

Though we face no war like the Peloponnesian War, we see that under the political pressure of the economic crisis in Europe that words are forced to change their ordinary meanings. Dishonesty and the degradation of language have follow-on effects every bit as severe as austerity measures: it becomes impossible to discuss the economy honestly, impossible to tell people what they need to hear, and difficult if not impossible to act decisively when decisive action might make a decisive difference.

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Monday


The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

There is no question that it is unwise to engage in speculation at a time when events are poised at a moment of decision, but is there any moment that is truly free of historical consequence, when speculation might be a safer and more certain undertaking? I think not. Another time I will attempt to explain why not, which involves a careful consideration of several points in the philosophy of history, but I will leave that particular justification for another time and boldly press forward on the prospects of the Euro and the Eurozone, even as the Greeks continue to have difficulties forming a government after their recent elections, and even as the new president-elect of France, Francois Hollande, has not yet revealed the precise policies that will be implemented in the attempt to make good on his campaign promises assuring growth instead of austerity.

I have several times discussed the nature and difficulties of the Eurozone, first in a trio of posts about the crisis in Greece as it first become evident — The Dubious Benefits of the Eurozone and Will the Eurozone Enact a Greek tragedy? and Can punitive fiscal policy work? — and then in further posts about the Eurozone periphery more generally, beyond Greece — A Return to the Good Old Days, Can collective economic security work? and Poor Cousins. My most frequently read post on the Euro, Shorting the Euro, while still accurate is no longer timely. Since then I wrote What would a rump Eurozone look like?.

The Eurozone is a great economic experiment in the way that the US is a great political experience: both have represented a revolutionary new order while building on past experience. This, if nothing else, makes the Eurozone fascinating. In the categories of my own thought the Eurozone is not quite an intelligent institution since it was constituted with mechanisms for nation-states to enter the Eurozone but no mechanisms for a nation-state to exit the Eurozone. Most culpably of all, the Eurozone was designed without a mechanism for either 1) forcing compliance of member states with its standards, or 2) forcing member states to collectively come to the aid of a failing member state (or, I could also observe, some combination of the two).

If the Eurozone had had either of these two mechanisms — compulsory and enforceable standards, or compulsory wealth transfer from richer to poorer states — the acute problem in Greece at the moment, and the possibly chronic problems in Italy, Spain, Portugal, and Ireland, would present definite options. Without a formal mechanism for resolving the crisis, the financial crisis becomes a political crisis that it did not have to become.

The consensus in the financial press at the present time is that the Franco-German core of the Euro will remain intact, and that Francois Hollande will not set out to enact any radically socialist policies (cf. President Hollande and the IMF) that would doom either France or the Euro to the kind of perpetual economic twilight experienced by the nationalizing likes of Hugo Chavez, Evo Morales, or Cristina Fernandez de Kirchner. Hollande knows well enough on which side France’s bread is buttered, and his campaign rhetoric must be understood as something entirely parallel to the “red meat” speeches given in the US by both Republicans and Democrats during the primary season, only to be dialed back drastically when it comes to the general election.

But matters are altogether different outside the Franco-German core of the Eurozone, as what was once merely whispered is now on the front pages of the newspapers: the likelihood that Greece will leave the Eurozone. (cf. Greece, France and the future of the euro and EU central bankers ponder Greece euro exit) Indeed, today’s Financial Times had Greece on the front page (Fear grows of Greece leaving euro) and the inside pages (Greek exit from eurozone ‘possible’) as well as a new week-long series, “If Greece goes…”

What will the Greeks do if they leave the Eurozone? Will they take to the printing presses and start printing Drachmas until everyone has a satisfying pocketful of money and the economy is driven into hyperinflation and the Greeks impose on themselves the austerity that they were unwilling to accept from the Germans? Since it seems to be universally believed that a bloated public sector and no expectation of paying taxes is a good thing, maybe they will suspend taxes altogether in Greece, and add anyone who likes to the public payroll dole. Not surprisingly, such steps aren’t going to revitalize the Greek economy, promote prosperity, or stoke economic growth.

What Greece does have to offer is an enormous tourist industry, whose beaches and islands and quaint hotels with tavernas around the corner will suddenly become attractive to northern Europeans when they once again because an inexpensive playground, which will happen if Greece exits that Euro and allows a fully floating Drachma that can be bid down on the international currency markets. Of course, tourists hate riots, and they would prefer not to see news stories about pensioners committing suicide in the capital as a protest. A single negative newspaper story can ruin an entire tourist season, and the hotels and restaurants wait and hope that next year will be better.

This may sound cynical, but it is realistic, and as close to true as I cam capable of getting. In actual fact, the reintroduction of the Drachma will necessarily be partial. The very wealthy already hold their assets in financial instruments not directly linked to Greece. Those not truly wealthy, but who have enough assets that they know to protect themselves, will already have their assets (other than real estate) moved out of Greece to the extent that this is possible. For the lower income bracket, the lower prices that will likely come (barring hyperinflation) from Greece re-adjusting its internal price mechanisms will make life slightly more affordable, but any assets held in Greece will essentially be ruined.

In practice, Greece will use both the Drachma and the Euro, because the Euro isn’t going away; the Euro will continue to be used in the rest of Europe, and will continue to be used as a secondary reserve currency around the world. The Euro will continued to be used in Greece, but Greece will no longer have any rights in determining administration of the Euro. I suggested once that the adoption of the Euro in peripheral European countries could be understood as a pre-emptive Euroization of the European periphery, with “Euroization” understood analogously to “Dollarization.” Greece will be related to the Euro as Ecuador is related to the US dollar. In fact, Greece will come close to approximating what I have called currency pluralism.

Under these conditions, the Greek economy will slowly and gradually improve its position, but no one will mistake the Greek economy as a peer competitor to the core states of the Eurozone. The Greeks will learn that if they riot, they will damage the one source of revenue that they can count on — tourism — and those who can accept this deal will reconcile themselves to life in the slow lane. The ambitious will leave for other parts of Europe or to America.

What will the rest of Europe do upon the exit of Greece from the Eurozone?

The Eurozone is a paradigmatically technocratic institution that presumes to organize and administrate the ordinary business of life without imposing any kind of ideological constraints on member states. Critics of the free market model of western capitalism linked to liberal democracy never tire of pointing out the ideological presuppositions of trans-national institutions like the Eurozone, the World Bank, and the IMF. I imagine that many of the Greek leftists now aspiring to form a government probably buy into much of this critique. But as they rail against the center and consciously enact policies intended to prove that they were right all along, they will only be guaranteeing the economic marginalization of Greece.

The implicit ideology of the Eurozone, however, is not that of the “Washington Consensus” with its deregulation and privatization, low tax rates and minimal government (otherwise known as Yanqui imperialism). Rather, the ideology of the Eurozone is that of the post-modern welfare state, with its cradle-to-grave social support system and a social consensus in which (in the words of the oft-disparaged Malthus), “each man’s share of labour would be light, and his portion of leisure ample.” You can call this the “Brussels Consensus” if you like.

In very small nation-states with ethnically homogeneous populations and a strong Protestant work ethic, the Brussels consensus works marvelously — in fact, it works better in such places than it works in Brussels itself. And that is why the Scandinavian nation-states regularly top all lists of the world’s stable democracies with the highest standards of living. But the rest of Europe, much less the rest of the world, cannot make itself over as Sweden or Norway, Denmark or Finland. However, those regions of Europe and the Eurozone that already approximate this social milieu, will continue to thrive in the economic context of the Eurozone.

As the Eurozone moves northward and begins to add stable and growing economies from the former Soviet periphery — chiefly Poland, but also the Baltic states — the geographical area of the Eurozone will come more and more to resemble that of the Hanseatic League, the great medieval trading network of Northern Europe (a trans-national corporation from before the age of nations and corporations). If you are unfamiliar with the Hanseatic Leagues, I urge you to watch Jonathan Meades’ wonderful documentary, Magnetic North, which offers a sketch of the trading bloc that is both erudite and amusing.

The Glory that was Greece and the Grandeur that was Rome may soon be severed from the industry and commerce that is Northern Europe, and Europe will continual to evolve regionally in ways that are consistent with regional economic cultures. Balkan Greece will have its own Orthodox tradition in the Balkans. Catholic Southern Europe (Italy, Spain, Portugal, and the Mediterranean islands) will eventually realize its own slower track version of the Eurozone, closer to the Eurozone than Greece, but not quite the same as the Franco-German core. Protestant Northern Europe will continue to optimize the currency union for those nation-states that are capable of maintaining the economic standards of the Eurozone.

If the Eurozone treaty can grow and evolve and change with the times, the Eurozone that will result will be more efficient and effective than the Eurozone as it is known today. If only those nation-states that are peer competitors can enter the currency union on terms of being true economic equals, this bond will grow and strengthen over time. The “Euroized” periphery will benefit from the trickle-down from a vibrantly economically competitive Northern European economic zone, but life will be different for them. It is silly to pretend otherwise.

There will be both opportunities and dangers in this changed and changing Europe. As has been the case from time out of mind, the clever and the ambitious will exploit the opportunities and will live well; the slow and the timid will will accept their lot.

Thus Europe will come to exemplify the maxim that Thucydides attributed to Athens at the height of Athenian hubris, though displaced from the political into the economic realm: the strong will do as they will, while the weak will suffer what they must.

Is this kind of economic hubris unsustainable? Not in the least. It was the model for Europe in antiquity, as we have seen in the case of Athens, and which was no less true of Rome, and it was the model for Europe again throughout the Middle Ages. This is the European way, however much they seek to deny it.

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Grand Strategy Annex

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